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Investing in US Timberland Companies

Author

Listed:
  • Jack Clark Francis

    (Department of Economics and Finance, Baruch College, New York, NY 10010, USA)

  • Ge Zhang

    (Department of Economics, Finance, and Global Business, William Paterson University, Wayne, NJ 07470, USA)

Abstract

Are common stocks issued by timberland companies a good investment? Portfolios of large US timberland corporations are compared to simultaneous investments in a diversified US common stock index. Over a 20-year sample period it turns out that the US timberland corporations, on average, perform about as well as the highly diversified US stock market index. It is surprising that the timberland companies do not outperform the stock market indexes because, in order to encourage tree planting, the US Congress has almost completely exempted timberland companies from paying federal income taxes. Furthermore, it is scientifically impossible to assess the value of the large amounts of photosynthesis that the timberland companies produce. As a result of these two ambiguities, it is difficult to state decisively that the timberland companies are better investments than a diversified portfolio of common stocks. However, valuing timberland companies is more practical than endeavoring to value the trees directly.

Suggested Citation

  • Jack Clark Francis & Ge Zhang, 2024. "Investing in US Timberland Companies," JRFM, MDPI, vol. 17(6), pages 1-13, May.
    • Handle: RePEc:gam:jjrfmx:v:17:y:2024:i:6:p:220-:d:1400864
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    References listed on IDEAS

    as
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    2. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
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