The time-varying role of timberland in long-term, mixed-asset portfolios under the mean conditional value-at-risk framework

Hector Restrepo, Weiyi Zhang and Bin Mei

Forest Policy and Economics, 2020, vol. 113, issue C

Abstract: We investigate the time-varying role of timberland in a mixed-asset portfolio using 15-year rolling windows. Before running portfolio optimizations, we first test normality of return distributions of selected assets including private- and public-equity timberlands, private-equity commercial real estate, public REITs, S&P 500 index, short- and long-term government bonds, and long-term corporate bonds. Given that returns are not normally distributed, we use conditional value-at-risk (CVaR) in lieu of standard deviation as the risk measure and investigate optimal asset allocations under the mean-CVaR framework. Results reveal that weight on timberland in the mixed-asset portfolio does vary with time for both the lowest risk portfolio and the tangency portfolio due to its changing return-to-risk ratio and correlation with other assets. In particular, private-equity timberland asset plays a more significant role in the constrained optimal portfolios invested by 15-year closed-end funds maturing in recent years.

Keywords: Institutional investments; Linear programing; Portfolio optimization; Real estate; TIMOs (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:forpol:v:113:y:2020:i:c:s1389934119306148

DOI: 10.1016/j.forpol.2020.102136

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