Appraisal-based index numbers and what the 6.9 percent is actually measuring

I read the NCREIF timberland volatility figure three times before it bothered me. Around 6.9 percent standard deviation against roughly 16 for public equities, and the properties in that index are valued by appraisal, not by trades. Appraisers use comparable sales that themselves lag, and they don't reprice a stand every time stumpage moves.

So the question I can't settle: does that smooth series describe an asset with genuinely low economic volatility, or does it describe a slow measurement method sitting on top of an asset whose true year-to-year value moves more than the chart shows?

The case for it being real: biological growth is an actual return component that doesn't care about sentiment, and a mature stand holds optionality because you can defer harvest when prices are weak. That flexibility is a real dampener, not a reporting artifact.

The case for it being partly measurement: transaction-based timber indices and the public timber REITs both show much wider swings, and if you had to sell in a soft quarter you'd discover the appraisal wasn't a bid. Closed-end timber fundraising being slow right now suggests institutions are pricing something the index doesn't display.

If it's smoothing, then using the reported correlation and volatility in a portfolio model overstates the diversification benefit, and that's the part I'd want to get right before committing capital I can't retrieve.