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

This paper quantifies the diversification potential of timberland investments in a meanvariance 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 meanvariance 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.