C I N T R A F O R
Working
Paper 77
International
Timberland Investments: Linking the Mean-Variance Approach to Country
Assessments
William
J. Turner
October
2001
74
pages.
Given the entrance of institutional investors
such as pension funds, onto the timberland ownership scene, timberland as an
asset is viewed differently now than it was in the past. Traditional asset
management practices based on the portfolio selection framework are chiefly
responsible for demonstrating the diversification benefits of
Asset performance descriptive statistics are
documented for the sample (1981-1998) and an analysis of correlation between
international timberland investments and assets of portfolios of
The correlation analysis is followed by a
portfolio selection process and then the study addresses characteristics
specific to international investments, such as foreign currency exchange issues
and qualitatively assessing countries risk characteristics as they specifically
relate to international timberland investments.
When analyzing international timberland
investments, a distinction is be made regarding the treatment of currency
exchange. Two, separate international timberland asset classes are considered.
One includes returns influenced by changing exchange rates and is based on a
return in U.S. Dollars. The other international timberland asset class only
considers the returns in the foreign currency and attempts to eliminate
exchange rate effects through hedging.
The underlying research objective is to
demonstrate the effects of investors adding international timberland
investments to an investment portfolio by including an examination of currency
exchange effects and an assessment of country-specific risk characteristics.