Modelling Timber Price Forecasts and Stumpage Market Expectations in Finland 1900-1995 Available to Purchase

The forecasting of real stumpage prices is analyzed both in the ex-ante and ex-post sense. The data consist of yearly observations of roundwood stumpage prices and the cost of living index in Finland 1900-1995. Optimal ex-ante forecasts for real prices are derived consistent with the rational expectations hypothesis. The empirical results show that real price expectations are not formed optimally and informational efficiency is not obtained. Orthogonality conditions are violated and ex-post real price changes can be explained by real price forecast errors. The results suggest that in Finland this century past stumpage prices have had predictive power but that markets have not used this information efficiently. The methodology proposed helps overcome conceptual problems encountered in testing timber market efficiency based on stationarity tests.