Browsing by Subject "Montgomery-Vartia"

This thesis investigates the methods and principles used to calculate timberland return indices. By studying these existing indices and new possible methods, the study contributes to the accuracy and methodology of timberland return measurement. Attention towards timberland investing has been increasing among institutional investors, while at the same time timberland return indices are also being utilized by policy makers as supporting indicators for policy decisions. The possibility to measure timberlands returns exactly is understandably of great interest and a desirable goal. Previous literature does discuss the general aspects of timberland return measurement and index calculation, but very little about the actual index number theory and its implications to the timberland return measurement. For this reason, there exist some issues regarding the currently available indices that make them prone to bias and otherwise unfavorable and inappropriate in the context of index number theory. The four existing indices considered in this thesis are the NCREIF Timberland Index, John Hancock Timber Index, Timberland Performance Index and the index formula utilized by the Finnish Forest Research Institute. The results of the examination confirm the benefits of fully-regulated forest in index construction, as it offers a stable and comparable base for an index. Also the effects and trade-offs of price selection, interest rate and index frequency are presented and discussed in detail. The utilization of net present value in index construction, instead of the liquidation value, is a new approach utilized in this thesis and the issues regarding its use in index calculation are considered and assessed. The key finding of this thesis is that the index formula used by the Finnish Forest Research Institute suffers from a weighting problem and it is not consistent in aggregation. To overcome the index number problems present in the existing indices, the pseudo-superlative Montgomery-Vartia index formula is applied into timberland returns. It is shown that the index is consistent in aggregation and that it approximates closely the desirable superlative indices. As a result, this thesis advocates the use of Montgomery-Vartia index. It is more appropriate formula for timberland return measurement than the currently used or the other available index formulas are, and its implementation should therefore be considered.