Journal of Forest Economics > Vol 30 > Issue 1

Hedging with trees: Tail-hedge discounting of long-term forestry returns

Lars Hultkrantz, Örebro University, Sweden, , Panagiotis Mantalos, Linneaus University, Sweden
Suggested Citation
Lars Hultkrantz and Panagiotis Mantalos (2018), "Hedging with trees: Tail-hedge discounting of long-term forestry returns", Journal of Forest Economics: Vol. 30: No. 1, pp 52-57.

Publication Date: 0/1/2018
© 0 2018 Lars Hultkrantz, Panagiotis Mantalos
JEL Codes:D61D63D81D92Q23
DiscountingFar‐distant futureDeclining discount ratesForestryForest economicsCost‐benefit analysis


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In this article:
Estimation of gamma for forest investment from a swedish time series 
Evaluation of forestry cases 
Discussion and conclusions 


Tail-hedge discounting is based on decomposition of returns from long-term investments in a fraction (gamma) that is correlated with consumption and another that is not. The first part is discounted at a discount rate that includes a risk premium, the other with the risk-free rate. We estimate gamma for forestry on Swedish data for stumpage prices and GDP per capita 1909–2012. We demonstrate that the result considerably changes the expected present value of medium-term and long-term forest investments.