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An analysis of the impact of timberland, farmland and commercial real estate in the asset allocation decisions of institutional investors


  • Waggle, Doug
  • Johnson, Don T.


We examine the effects of including timberland, farmland and commercial real estate in a mixed asset portfolio with stocks, government bonds and T-Bills. Using both smoothed and unsmoothed returns (as per Geltner [Geltner, D. (1993). Estimating market values from appraised values without assuming an efficient market. Journal of Real Estate Research, 8, 25-345.]) and both constrained and unconstrained allocation assumptions (as per Eichhorn, Gupta and Stubbs [Eichhorn, D., Gupta, F., & Stubbs, E. (1998). Using constraints to improve the robustness of asset allocation. Journal of Portfolio Management, Spring, 41-48.]), we employ Markowitz portfolio optimization and find widely varying allocation outcomes. However, timberland entered nearly all portfolios, accounting for large percentages in several scenarios, while farmland entered only low-risk portfolios. At lower risk levels, commercial real estate dominates the real estate allocation but as acceptable risk levels rise, timberland supplants commercial real estate as the primary component of the portfolio's real estate allocation.

Suggested Citation

  • Waggle, Doug & Johnson, Don T., 2009. "An analysis of the impact of timberland, farmland and commercial real estate in the asset allocation decisions of institutional investors," Review of Financial Economics, Elsevier, vol. 18(2), pages 90-96, April.
  • Handle: RePEc:eee:revfin:v:18:y:2009:i:2:p:90-96

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    References listed on IDEAS

    1. David M. Geltner, 1993. "Estimating Market Values from Appraised Values without Assuming an Efficient Market," Journal of Real Estate Research, American Real Estate Society, vol. 8(3), pages 325-346.
    2. David A. Lins & Bruce J. Sherrick & Aravind Venigalla, 1992. "Institutional Portfolios: Diversification through Farmland Investment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(4), pages 549-571.
    3. Clair H. Redmond & Frederick W. Cubbage, 1988. "Portfolio Risk and Returns from Timber Asset Investments," Land Economics, University of Wisconsin Press, vol. 64(4), pages 325-337.
    4. Changyou Sun & Daowei Zhang, 2001. "Assessing the Financial Performance of Forestry-Related Investment Vehicles: Capital Asset Pricing Model vs. Arbitrage Pricing Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(3), pages 617-628.
    5. James R. Webb & Jack H. Rubens, 1988. "The Effect of Alternative Return Measures on Restricted Mixed-Asset Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 16(2), pages 123-137.
    6. Hardin, William G, III & Cheng, Ping, 2002. "Farmland Investment under Conditions of Certainty and Uncertainty," The Journal of Real Estate Finance and Economics, Springer, vol. 25(1), pages 81-98, July.
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    Cited by:

    1. Mei, Bin, 2015. "Illiquidity and risk of commercial timberland assets in the United States," Journal of Forest Economics, Elsevier, vol. 21(2), pages 67-78.
    2. Wan, Yang & Clutter, Michael L. & Mei, Bin & Siry, Jacek P., 2015. "Assessing the role of U.S. timberland assets in a mixed portfolio under the mean-conditional value at risk framework," Forest Policy and Economics, Elsevier, vol. 50(C), pages 118-126.
    3. repec:eee:jebusi:v:91:y:2017:i:c:p:24-40 is not listed on IDEAS
    4. Gao, Lei & Mei, Bin, 2013. "Investor attention and abnormal performance of timberland investments in the United States," Forest Policy and Economics, Elsevier, vol. 28(C), pages 60-65.


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