Informational Efficiency of Markets for Stumpage: Reply

Abstract

We appreciate the opportunity to reply to Hultkrantz's comment on our analysis of the informational efficiency of markets for pine sawtimber stumpage in the U.S. South (Washburn and Binkley). The efficiency (or inefficiency) of stumpage markets does indeed have important implications for forest management decisions, and we are pleased by Hultkrantz's interest in the subject. His comment makes many valid points and furthers the debate on stumpage market efficiency. There are, however, some issues raised by Hultkrantz that require discussion, clarification, or correction. Our reply proceeds in five stages. First, we clarify the meaning of stumpage market efficiency and illustrate its consequences for the time-series behavior of stumpage prices and for the profitability of priceresponsive timber harvesting strategies. Second, we argue that the price elasticity of aggregate timber supply has little relevance to the question of stumpage market efficiency. Third, we show that Hultkrantz's analysis of the stationarity of southern pine stumpage prices and our analysis of the serial relationship between departures from equilibrium rates of stumpage price change are simply alternative means of testing the hypothesis that stumpage markets are weak-form efficient. Fourth, we argue that Hultkrantz's results are largely consistent with those presented in Washburn and Binkley. Finally, we interpret the results of tests of stumpage market efficiency to date, and suggest a path forward.