Return and Risk in Timberland and Other Investment Alternatives of NIPF Owners

Abstract

No comparisons for Non-Industrial Private Forest (NIPF) owners of the returns on timberland and other investment alternatives, or of the risks in different investments, have been made in Swedish forest economics research. Modern portfolio theory in forest economics has been used to a very small extent in all of Europe, with the exception of Finland. The underlying idea in this study was to apply "the mean-variance framework" in Swedish forest holdings and make comparisons with some other investment alternatives. The results showed that forest holdings had a medium-high return and a high risk. Shares showed high returns and a relatively high risk. Bank assets showed low returns and a low risk. The lowest returns were seen for agricultural holdings. There were negative correlations for forest holdings with several other assets, which means that forest as one investment in a portfolio can be defended when the risks are spread out over time. The result indicates that it would be of interest for NIPF owners to reduce their investments in timberland and increase their share holdings. However, the portfolio mixture depends on the risk preferences of the owners.