Illiquidity and risk of commercial timberland assets in the United States

Using the BDS independent test and the bootstrapping method, this paper examines the relationship between return and risk of various timberland investment vehicles and the holding period. Results from the BDS test reject the null hypothesis of independent and identically distributed (i.i.d.) returns and results from the simulation indicate that the average quarterly return remains almost constant and thus independent of the holding period but the average quarterly risk (standard deviation) varies among different timberland investment vehicles. For private-equity timberland assets, the average periodic risk increases with the holding period, whereas for public-equity timberland assets, it stays relatively constant. Overall, there is some evidence that private-equity timberland returns as measured by various NCREIF timberland indices tend not to be independent and identically distributed, a violation of the key assumption for the modern portfolio theory.