Journal of Forest Economics > Vol 30 > Issue 1

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

Lars Hultkrantz, Örebro University, Sweden, lars.hultkrantz@oru.se , 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. http://dx.doi.org/10.1016/j.jfe.2018.02.001

Publication Date: 0/1/2018
© 0 2018 Lars Hultkrantz, Panagiotis Mantalos
 
Subjects
 
Keywords
JEL Codes:, D61, D63, D81, D92, Q23
Discounting, Far‐distant future, Declining discount rates, Forestry, Forest economics, Cost‐benefit analysis
 

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

Abstract

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.

DOI:10.1016/j.jfe.2018.02.001