Evaluating Market Efficiency of the US Forest Industry

The market efficiency of the US forest industry had evolved over the past decade. In this study, the entropy measurement, an econophysic approach, was applied to quantify the informational efficiency of timber real estate investment trusts (REITs), wood, furniture, and paper markets in the United States during the period from 1999 to 2012. In a relative context, indices on Treasury bonds were used to proxy the risk-free rate of returns, while Standard & Poor's (S&P) 500 stock returns were used as a yardstick for risky investments. The analysis indicated that the forest markets were considerably more informationally efficient than the Treasury market. Furthermore, most markets were marginally more efficient compared with the S&P 500 index, with the exception of REIT returns. Therefore, better arbitrage opportunities were present in REIT investments.