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Announcement effects and the theory of storage: an empirical study of lumber futures

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  • Berna Karali
  • Walter N. Thurman

Abstract

We investigate how lumber futures returns are affected by monthly housing starts announcements and analyze the dependence of the response on lumber inventories and time to delivery. To do so we develop a generalized least squares (GLS) method to jointly analyze simultaneously traded contracts. We find that increases in the unanticipated component of housing starts announcements increase returns on lumber futures contracts. Further, and as predicted by the theory of storage but previously unrecorded, the effects of housing starts shocks decline with lumber inventories. There is also a time‐to‐delivery effect: near‐delivery contracts respond more sharply to housing starts news than do farther‐out contracts.

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  • Berna Karali & Walter N. Thurman, 2009. "Announcement effects and the theory of storage: an empirical study of lumber futures," Agricultural Economics, International Association of Agricultural Economists, vol. 40(4), pages 421-436, July.
  • Handle: RePEc:bla:agecon:v:40:y:2009:i:4:p:421-436
    DOI: 10.1111/j.1574-0862.2009.00389.x
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    File URL: https://doi.org/10.1111/j.1574-0862.2009.00389.x
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    Cited by:

    1. Olga Isengildina-Massa & Berna Karali & Scott H. Irwin, 2013. "When do the USDA forecasters make mistakes?," Applied Economics, Taylor & Francis Journals, vol. 45(36), pages 5086-5103, December.
    2. Liu, Peng & Lu, Xiaomeng & Tang, Ke, 2012. "The determinants of homebuilder stock price exposure to lumber: Production cost versus housing demand," Journal of Housing Economics, Elsevier, vol. 21(3), pages 211-222.
    3. Berna Karali & Jeffrey H. Dorfman & Walter N. Thurman, 2010. "Do volatility determinants vary across futures contracts? Insights from a smoothed Bayesian estimator," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(3), pages 257-277, March.
    4. Karali, Berna & Thurman, Walter N., 2008. "Volatility Persistence in Commodity Futures:Inventory and Time-to-Delivery Effects," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37612, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    5. Karali, Berna & Power, Gabriel J., 2010. "Is commodity price volatility persistent? Another look using improved, full-sample estimates," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61826, Agricultural and Applied Economics Association.
    6. Berna Karali & Jeffrey H. Dorfman & Walter N. Thurman, 2010. "Delivery horizon and grain market volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 30(9), pages 846-873, September.
    7. Bozic, Marin & Newton, John & Thraen, Cameron S. & Gould, Brian W., 2014. "Parametric Bootstrap Tests for Futures Price and Implied Volatility Biases With Application to Rating Dairy Margin Insurance," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170416, Agricultural and Applied Economics Association.
    8. Berna Karali & Gabriel J. Power, 2013. "Short- and Long-Run Determinants of Commodity Price Volatility," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(3), pages 724-738.
    9. Clements, Sherwood & Tidwell, Alan & Jin, Changha, 2017. "Futures markets and real estate public equity: Connectivity of lumber futures and Timber REITs," Journal of Forest Economics, Elsevier, vol. 28(C), pages 70-79.

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