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Assessing forestry-related assets with the intertemporal capital asset pricing model

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  • Yao, Wenjing
  • Mei, Bin

Abstract

The intertemporal capital asset pricing model is used to assess the risk–return relationship between forestry-related assets and innovations in state variables using quarterly returns from 1988Q1 to 2011Q4. Market excess returns and innovations in the small-minus-big and high-minus-low factors, interest rate, term spread, default spread and aggregate consumption explain about 80% of the variation in cross-sectional returns of 16 forestry-related assets. Beta loadings on innovations in high-minus-low, interest rate and term spread induce significant risk premiums, and should be priced to determine the cross-sectional expected returns of the forestry-related assets. In general, average excess returns of the forestry-related assets decrease from the period of 1988Q1–1999Q4 to the period of 2000Q1–2011Q4. Significant positive excess returns are obtained in the first sub-period for private- and public-equity timberland assets but not in the second sub-period. Insignificant excess returns are obtained for forest products and timber products in the whole sample period. The results are robust to different specification tests.

Suggested Citation

  • Yao, Wenjing & Mei, Bin, 2015. "Assessing forestry-related assets with the intertemporal capital asset pricing model," Forest Policy and Economics, Elsevier, vol. 50(C), pages 192-199.
  • Handle: RePEc:eee:forpol:v:50:y:2015:i:c:p:192-199
    DOI: 10.1016/j.forpol.2014.06.006
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    References listed on IDEAS

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    Cited by:

    1. Piao, Xiaorui & Mei, Bin & Xue, Yuan, 2016. "Comparing the financial performance of timber REITs and other REITs," Forest Policy and Economics, Elsevier, vol. 72(C), pages 115-121.

    More about this item

    Keywords

    ICAPM; Innovations; Forest investments; State variables; Time series;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry

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