Veli-Pekka Heikkinen , Antti Kanto

Market model with long-term effects – empirical evidence from Finnish forestry returns

Heikkinen V.-P., Kanto A. (2000). Market model with long-term effects – empirical evidence from Finnish forestry returns. Silva Fennica vol. 34 no. 1 article id 645. https://doi.org/10.14214/sf.645

Abstract

The aim of the study is to reformulate the conventional market model by considering also long-run characteristics of forestry returns. Finnish stumpage prices and the stock market index are found co-integrated. Co-integration relationship between timber and stock market indicates that there are factors in timber market like high transaction costs, illiquidity or temporal lack of information, and in the Finnish case, price recommendations that are priced by market. The presence of long-run effects may make the short-term market model mis-specified and it may give misleading and incomplete results concerning the expected risk and return of forestry. In our case, the market model risk beta was only slightly biased. This study indicates that an error-correction model is more appropriate model than the market model.

Keywords
forest risk returns; market model; co-integration

Received 22 February 1999 Accepted 24 January 2000 Published 31 December 2000

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