Does Money Grow on Trees? The Diversification Properties of U.S. Timberland Investments

This paper quantifies the diversification potential of timberland investments in a mean-variance framework. The starting point is a broad set of benchmark assets represented by various indexes. Including publicly traded timberland investments in the portfolio does not significantly increase mean-variance efficiency. At first sight, U.S. private equity timberland seems to improve the mean-variance frontier, even if the portfolio already contains a forestry and paper equity index. However, after removing the appraisal smoothing bias from the raw timberland data, there is much less evidence that private equity timberland investments increase mean-variance efficiency.