Risk, returns and possible speculative bubbles in the price of Danish forest land?

In this short paper I analyse the development of returns to forest land in Denmark for the period 1947 to 2007. The data used are fairly unique time series of forest enterprises annual accounts in combination with property value assessments over the entire period. They allow for a dissection of returns into operational returns and capital gains. I draw in previous analyses using the capital asset pricing model to assess the co-variation of returns in Danish forestry with returns from the market portfolio, as represented by the major financial asset groups representing the bulk of that. I compare the development in returns and notably the role of the capital gain over the period, to the likely equilibrium market return relevant for forest enterprises. The observations raise the question if i) also the prices of forest land in recent decades have been subject to a speculative bubble driving up prices beyond that justified by patterns of return in forestry or ii) if the returns to forest owners from holding a forest property is not Ill-captured by the marketable goods derived from forestry accounts, in essence a forest may not only be productive capital but also a consumption good.