Three essays on the performance of timberland assets and forest products industry in the United States
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Timberland assets have become a popular alternative investment vehicle for institutional investors since the 1980s in the United States. Currently, private- and public-equity timberland investments exist together in the United States. Chapter 2 employs the Fisher hypothesis and CAPMUI to analyze how effectively private- and public-equity timberland assets hedge actual, expected, and unexpected inflation in the U.S. during 1987 – 2009. Empirical results suggest that private-equity timberland assets do hedge actual, expected, and unexpected inflation, whereas public-equity timberland assets are not consistent in hedging actual, expected, or unexpected inflation. Private-equity timberland assets are effective in hedging inflation during the expansion and less effective during the recession. Investment horizon also plays a significant role in timberland inflation hedging. The longer people invest in the private-equity timberland assets, the stronger and more consistent the hedging ability holds. Chapter 3 uses the M-CVaR optimization approach to formulate asset allocation strategies and to examine the role of timberland assets in a mixed portfolio from the risk perspective. The M-CVaR efficient frontier of the mixed portfolio is dramatically improved after adding timberland assets in comparison of the mean-variance (M-V) efficient frontier. Timberland assets are preferred for high target returns, indicating its ability to generate high returns. It is found that large-cap stocks and small-cap stocks are generally risk intensifiers, whereas treasury bonds, treasury bills, and timberland assets are risk diversifiers. Chapter 4 examines what role macroeconomic news plays in the U.S. forest products industry portfolios across business cycles. Using ARMA-EGARCH models, we examine the impact of consumer price index (CPI), industrial production (IP), and unemployment (UNEMP) on the returns and volatilities of the lumber and paper industry portfolios over 1963 – 2010. Leverage effects of positive and negative shocks on the forest products industry have been detected. The impact of macroeconomic news on industry portfolio returns and volatilities vary across business cycles. Negative shocks have greater impact on portfolio volatilities in recessions than in expansions.