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The time-varying role of timberland in long-term, mixed-asset portfolios under the mean conditional value-at-risk framework

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  • Restrepo, Hector
  • Zhang, Weiyi
  • Mei, Bin

Abstract

We investigate the time-varying role of timberland in a mixed-asset portfolio using 15-year rolling windows. Before running portfolio optimizations, we first test normality of return distributions of selected assets including private- and public-equity timberlands, private-equity commercial real estate, public REITs, S&P 500 index, short- and long-term government bonds, and long-term corporate bonds. Given that returns are not normally distributed, we use conditional value-at-risk (CVaR) in lieu of standard deviation as the risk measure and investigate optimal asset allocations under the mean-CVaR framework. Results reveal that weight on timberland in the mixed-asset portfolio does vary with time for both the lowest risk portfolio and the tangency portfolio due to its changing return-to-risk ratio and correlation with other assets. In particular, private-equity timberland asset plays a more significant role in the constrained optimal portfolios invested by 15-year closed-end funds maturing in recent years.

Suggested Citation

  • Restrepo, Hector & Zhang, Weiyi & Mei, Bin, 2020. "The time-varying role of timberland in long-term, mixed-asset portfolios under the mean conditional value-at-risk framework," Forest Policy and Economics, Elsevier, vol. 113(C).
    • Handle: RePEc:eee:forpol:v:113:y:2020:i:c:s1389934119306148
    DOI: 10.1016/j.forpol.2020.102136
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    References listed on IDEAS

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    1. Petri P. Karenlampi, 2022. "Two strategies for boreal forestry with goodwill in capitalization," Papers 2205.06744, arXiv.org.
    2. Hans Lööf & Maziar Sahamkhadam & Andreas Stephan, 2023. "Incorporating ESG into Optimal Stock Portfolios for the Global Timber & Forestry Industry," Journal of Forest Economics, now publishers, vol. 38(2), pages 133-157, June.
    3. Petri P. Kärenlampi, 2022. "Two Manifestations of Market Premium in the Capitalization of Carbon Forest Estates," Energies, MDPI, vol. 15(9), pages 1-26, April.

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