Inflation hedging effectiveness of farmland and timberland assets in the United States

Abstract

We examine the effectiveness of private- and public-equity farmland and timberland assets in hedging actual, expected, and unexpected inflation by using the capital asset pricing model under inflation. Rolling regression is used to assess the time-varying ability of hedging inflation. Results show that private-equity farmland can hedge all inflation types with a 15-year investment horizon, whereas private- and public-equity timberland can hedge expected and unexpected inflation with 15- and 30-year investment horizons. Public-equity farmland is found to be an ineffective inflation hedge in the whole sample period (2013Q1-2021Q4). Rolling regression reveals that the financial crisis of 2008 is the cutoff period after which public-equity farmland and timberland assets become more effective inflation hedges and the ability gets stronger as the investment horizon goes beyond 10 years. Overall, results suggest that the inflation hedging effectiveness depends on the investment horizon and the state of the economy, and differs across farmland and timberland assets.