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Stochastic Dominance Portfolio Analysis of Forestry Assets

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Author Info
V.-P. Heikkinen (Varma-Sampo Mutual Pension Insurance Company, Finland)
& Timo Kuosmanen (Wageningen University, The Netherlands)

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Abstract

We consider the forestry decision-making and harvesting problem from the perspective of financial portfolio management, where harvestable forest stands constitute one of the liquid assets of the portfolio. Using real data from Finnish mixed borealis forests and from the Helsinki stock exchange, we investigate the effect of trading the timber stock together with the forest land, or without the land (i.e., harvesting), on the portfolio efficiency. As our research methodology, we utilize the general Stochastic Dominance (SD) criteria, focusing on the recent theoretical advances in analyzing portfolio diversification within the SD framework. Our findings shed some further light on the question of how to model the forestry planning problem, and provide some comparative evidence of the applicability of the alternative SD test approaches.

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File URL: http://129.3.20.41/eps/fin/papers/0210/0210002.pdf
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Publisher Info
Paper provided by EconWPA in its series Finance with number 0210002.

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Date of creation: 08 Oct 2002
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Handle: RePEc:wpa:wuwpfi:0210002

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Web page: http://129.3.20.41

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Related research
Keywords: Forest Management; Portfolio Optimization; Stochastic Dominance; Diversification;

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Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
C61 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - Optimization Techniques; Programming Models; Dynamic Analysis

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March. [Downloadable!] (restricted)
  2. Porter, R. Burr & Pfaffenberger, Roger C., 1975. "Efficient Algorithms for Conducting Stochastic Dominance Tests on Large Numbers of Portfolios: Reply," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 10(01), pages 181-185, March. [Downloadable!]
  3. Timo Kuosmanen, 2001. "Stochastic Dominance Efficiency Tests under Diversification," Finance 0105001, EconWPA. [Downloadable!]
  4. Post, G.T., 2001. "Testing for Stochastic Dominance with Diversification Possibilities," Research Paper ERS-2001-38-F&A Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Timo Kuosmanen, 2007. "Performance measurement and best-practice benchmarking of mutual funds: combining stochastic dominance criteria with data envelopment analysis," Journal of Productivity Analysis, Springer, vol. 28(1), pages 71-86, October. [Downloadable!] (restricted)
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This page was last updated on 2009-12-13.

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