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Assessing the Financial Performance of Forestry-Related Investment Vehicles: Capital Asset Pricing Model vs. Arbitrage Pricing Theory

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  • Changyou Sun
  • Daowei Zhang

Abstract

Capital asset pricing model (CAPM) and arbitrage pricing theory (APT) are used to assess the financial performance of eight forestry-related investment vehicles. Although results from APT support previous findings from CAPM about timberland investments, three bodies of evidence show that APT findings are more robust. The major conclusions are (a) institutional timberland investments and timberland limited partnerships have a low risk level and excess returns; (b) forestry industry companies have not earned risk-adjusted returns, and the performance of medium forest industry firms is worse than that of large firms; (c) stumpage price does not resemble the return generation process of timberland investments; and (d) lumber futures have little excess return. Copyright 2001, Oxford University Press.

Suggested Citation

  • 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.
    • Handle: RePEc:oup:ajagec:v:83:y:2001:i:3:p:617-628
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    File URL: http://hdl.handle.net/10.1111/0002-9092.00182
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    Cited by:

    1. Sun, Changyou, 2013. "On the market risk of securitized timberlands," Journal of Forest Economics, Elsevier, vol. 19(2), pages 110-127.
    2. Bert Scholtens & Laura Spierdijk, 2010. "Does Money Grow on Trees? The Diversification Properties of U.S. Timberland Investments," Land Economics, University of Wisconsin Press, vol. 86(3).
    3. 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.
    4. La, Le & Mei, Bin, 2015. "Portfolio diversification through timber real estate investment trusts: A cointegration analysis," Forest Policy and Economics, Elsevier, vol. 50(C), pages 269-274.
    5. Mei, Bin, 2019. "Timberland investments in the United States: A review and prospects," Forest Policy and Economics, Elsevier, vol. 109(C).
    6. Erol Muzir & Cevdet Kizil & Burak Ceylan, 2021. "Role of International Trade Competitive Advantage and Corporate Governance Quality in Predicting Equity Returns: Static and Conditional Model Proposals for an Emerging Market," JRFM, MDPI, vol. 14(3), pages 1-31, March.
    7. Wan, Yang & Clutter, Michael L. & Siry, Jacek P. & Mei, Bin, 2013. "Assessing the impact of macroeconomic news on the U.S. forest products industry portfolio across business cycles: 1963–2010," Forest Policy and Economics, Elsevier, vol. 28(C), pages 15-22.
    8. Manfredo, Mark R. & Sanders, Dwight R., 2006. "Contribution to Price Discovery in the Forest Product Market: Futures, Forwards, and Spot Markets," 2006 Annual meeting, July 23-26, Long Beach, CA 21250, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Andersson, Mats & Gong, Peichen, 2010. "Risk preferences, risk perceptions and timber harvest decisions -- An empirical study of nonindustrial private forest owners in northern Sweden," Forest Policy and Economics, Elsevier, vol. 12(5), pages 330-339, June.
    10. Mei, Bin & Clutter, Michael L., 2020. "Return and information transmission of public and private timberland markets in the United States," Forest Policy and Economics, Elsevier, vol. 113(C).
    11. Sun, Changyou & Rahman, Mohammad M. & Munn, Ian A., 2013. "Adjustment of stock prices and volatility to changes in industrial timberland ownership," Forest Policy and Economics, Elsevier, vol. 26(C), pages 91-101.
    12. Aleksandra Górna & Alicja Szabelska-Beręsewicz & Marek Wieruszewski & Monika Starosta-Grala & Zygmunt Stanula & Anna Kożuch & Krzysztof Adamowicz, 2023. "Predicting Post-Production Biomass Prices," Energies, MDPI, vol. 16(8), pages 1-16, April.
    13. Manfredo, Mark R. & Sanders, Dwight R., 2008. "Price discovery in a private cash forward market for lumber," Journal of Forest Economics, Elsevier, vol. 14(1), pages 73-89, January.
    14. Kanieski da Silva, Bruno & Schons, Stella Z. & Cubbage, Frederick W. & Parajuli, Rajan, 2020. "Spatial and cross-product price linkages in the Brazilian pine timber markets," Forest Policy and Economics, Elsevier, vol. 117(C).
    15. 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.
    16. 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.
    17. Doug Waggle & Don T. Johnson, 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, John Wiley & Sons, vol. 18(2), pages 90-96, April.
    18. Hyytiainen, Kari & Penttinen, Markku, 2008. "Applying portfolio optimisation to the harvesting decisions of non-industrial private forest owners," Forest Policy and Economics, Elsevier, vol. 10(3), pages 151-160, January.
    19. Ståle Størdal & Gudbrand Lien & Erik Trømborg, 2021. "Impacts of Infectious Disease Outbreaks on Firm Performance and Risk: The Forest Industries during the COVID-19 Pandemic," JRFM, MDPI, vol. 14(7), pages 1-13, July.
    20. Sanders, Dwight R. & Manfredo, Mark R., 2005. "Price Discovery in Private Cash Forward Markets - The Case of Lumber," 2005 Conference, April 18-19, 2005, St. Louis, Missouri 19049, NCR-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    21. 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.
    22. Chudy, R.P. & Chudy, K.A. & Kanieski da Silva, B. & Cubbage, F.W. & Rubilar, R. & Lord, R., 2020. "Profitability and risk sources in global timberland investments," Forest Policy and Economics, Elsevier, vol. 111(C).

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