IDEAS home Printed from https://ideas.repec.org/a/eee/jhouse/v21y2012i3p211-222.html
   My bibliography  Save this article

The determinants of homebuilder stock price exposure to lumber: Production cost versus housing demand

Author

Listed:
  • Liu, Peng
  • Lu, Xiaomeng
  • Tang, Ke

Abstract

We study the economic linkage between homebuilder stock market performance and commodity futures market information on a major component of building materials—lumber. The price of lumber plays a dual role in determining homebuilder profits: it represents a production input cost and serves as a future housing demand indicator. Using all US publicly listed homebuilder stocks, we show that the housing demand effect dominates the builder–lumber relationship. This effect is robust even after we control for the Federal Housing Finance Association (FHFA) housing price index (HPI). Our results further indicate that the slope of the lumber futures curve serves as a cross-market signal of future housing demand and thus of homebuilder stock market performance.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jhouse:v:21:y:2012:i:3:p:211-222
    DOI: 10.1016/j.jhe.2012.05.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1051137712000307
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jhe.2012.05.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Flannery, Mark J & James, Christopher M, 1984. "The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions," Journal of Finance, American Finance Association, vol. 39(4), pages 1141-1153, September.
    2. Topel, Robert H & Rosen, Sherwin, 1988. "Housing Investment in the United States," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 718-740, August.
    3. Tufano, Peter, 1996. "Who Manages Risk? An Empirical Examination of Risk Management Practices in the Gold Mining Industry," Journal of Finance, American Finance Association, vol. 51(4), pages 1097-1137, September.
    4. 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.
    5. repec:bla:jfinan:v:53:y:1998:i:3:p:1015-1052 is not listed on IDEAS
    6. James M. Poterba, 1984. "Tax Subsidies to Owner-Occupied Housing: An Asset-Market Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 99(4), pages 729-752.
    7. Jaime Casassus & Peng Liu & Ke Tang, 2011. "Relative Scarcity of Commodities with a Long-Term Economic Relationship and the Correlation of Futures Returns," Documentos de Trabajo 404, Instituto de Economia. Pontificia Universidad Católica de Chile..
    8. Somerville, C Tsuriel, 1999. "Residential Construction Costs and the Supply of New Housing: Endogeneity and Bias in Construction Cost Indexes," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 43-62, January.
    9. David A. Carter & Daniel A. Rogers & Betty J. Simkins, 2006. "Hedging and Value in the U.S. Airline Industry," Journal of Applied Corporate Finance, Morgan Stanley, vol. 18(4), pages 21-33, September.
    10. DiPasquale Denise & Wheaton William C., 1994. "Housing Market Dynamics and the Future of Housing Prices," Journal of Urban Economics, Elsevier, vol. 35(1), pages 1-27, January.
    11. Stuart S. Rosenthal, 1999. "Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market," The Review of Economics and Statistics, MIT Press, vol. 81(2), pages 288-302, May.
    12. Follain, James R., 1979. "A Study of the Demand for Housing by Low Versus High Income Households," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 14(4), pages 769-782, November.
    13. G. David Haushalter, 2000. "Financing Policy, Basis Risk, and Corporate Hedging: Evidence from Oil and Gas Producers," Journal of Finance, American Finance Association, vol. 55(1), pages 107-152, February.
    14. Mark Bertus & Harris Hollans & Steve Swidler, 2008. "Hedging House Price Risk with CME Futures Contracts: The Case of Las Vegas Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 37(3), pages 265-279, October.
    15. Jorion, Philippe, 1990. "The Exchange-Rate Exposure of U.S. Multinationals," The Journal of Business, University of Chicago Press, vol. 63(3), pages 331-345, July.
    16. Dusak, Katherine, 1973. "Futures Trading and Investor Returns: An Investigation of Commodity Market Risk Premiums," Journal of Political Economy, University of Chicago Press, vol. 81(6), pages 1387-1406, Nov.-Dec..
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhang, Nan & Mei, Bin & Li, Yanshu, 2023. "A review of the financial performance of lumber futures and some prospects," Forest Policy and Economics, Elsevier, vol. 157(C).
    2. García Rendon, John Jairo & Cossio Sepúlveda, Daniel Mateo & Mesa Urhan, Ricardo, 2018. "Efectos del canal del crŽdito sobre el precio de la vivienda nueva en Medell’n - Colombia || Credit channel effects on new residential property prices: Evidence from Medell’n, Colombia," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 26(1), pages 104-127, Diciembre.
    3. 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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
    2. Schulz, Rainer & Werwatz, Axel, 2008. "House prices and replacement cost: A mMicro-level analysis," SFB 649 Discussion Papers 2008-013, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    3. repec:hum:wpaper:sfb649dp2008-013 is not listed on IDEAS
    4. David A. Carter & Daniel A. Rogers & Betty J. Simkins, 2006. "Does Hedging Affect Firm Value? Evidence from the US Airline Industry," Financial Management, Financial Management Association International, vol. 35(1), pages 53-86, March.
    5. Pedro Miguel Moreira Lopes Garcês & Cesaltina Maria Pacheco Pires, 2011. "New housing supply: what do we know and how can we learn more?," CEFAGE-UE Working Papers 2011_18, University of Evora, CEFAGE-UE (Portugal).
    6. Ball, Michael & Meen, Geoffrey & Nygaard, Christian, 2010. "Housing supply price elasticities revisited: Evidence from international, national, local and company data," Journal of Housing Economics, Elsevier, vol. 19(4), pages 255-268, December.
    7. Paulo M.M. Rodrigues & Rita Fradique Lourenço, 2015. "House prices: bubbles, exuberance or something else? Evidence from euro area countries," Working Papers w201517, Banco de Portugal, Economics and Research Department.
    8. Dionne, Georges & El Hraiki, Rayane & Mnasri, Mohamed, 2023. "Determinants and real effects of joint hedging: An empirical analysis of US oil and gas producers," Energy Economics, Elsevier, vol. 124(C).
    9. Mohamed Mnasri & Georges Dionne & Jean-Pierre Gueyie, 2013. "The Maturity Structure of Corporate Hedging: the Case of the U.S. Oil and Gas Industry," Cahiers de recherche 1337, CIRPEE.
    10. Söhnke M. Bartram & Gregory W. Brown & Frank R. Fehle, 2009. "International Evidence on Financial Derivatives Usage," Financial Management, Financial Management Association International, vol. 38(1), pages 185-206, March.
    11. Addison-Smyth, Diarmaid & McQuinn, Kieran & O' Reilly, Gerard, 2008. "Estimating the Structural Demand for Irish Housing," Research Technical Papers 1/RT/08, Central Bank of Ireland.
    12. Markus Hang & Jerome Geyer-Klingeberg & Andreas W. Rathgeber & Clémence Alasseur & Lena Wichmann, 2021. "Interaction effects of corporate hedging activities for a multi-risk exposure: evidence from a quasi-natural experiment," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 789-818, February.
    13. Juan Ayuso & Fernando Restoy, 2003. "House prices and rents: an equilibrium asset pricing approach," Working Papers 0304, Banco de España.
    14. Rountree, Brian & Weston, James P. & Allayannis, George, 2008. "Do investors value smooth performance?," Journal of Financial Economics, Elsevier, vol. 90(3), pages 237-251, December.
    15. Arthur Grimes & Andrew Aitken, 2006. "Housing Supply and Price Adjustment," Working Papers 06_01, Motu Economic and Public Policy Research.
    16. Dionne, Georges & Gueyie, Jean-Pierre & Mnasri, Mohamed, 2018. "Dynamic corporate risk management: Motivations and real implications," Journal of Banking & Finance, Elsevier, vol. 95(C), pages 97-111.
    17. Mnasri, Mohamed & Dionne, Georges & Gueyie, Jean-Pierre, 2013. "How do firms hedge risks? Empirical evidence from U.S. oil and gas producers," Working Papers 13-3, HEC Montreal, Canada Research Chair in Risk Management.
    18. Christopher J. Mayer & C. Tsuriel Somerville, 1996. "Unifying empirical and theoretical models of housing supply," Working Papers 96-12, Federal Reserve Bank of Boston.
    19. Markus Hang & Jerome Geyer‐Klingeberg & Andreas W. Rathgeber & Stefan Stöckl, 2021. "Rather complements than substitutes: Firm value effects of capital structure and financial hedging decisions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 4895-4917, October.
    20. Berghöfer, Britta & Lucey, Brian, 2014. "Fuel hedging, operational hedging and risk exposure — Evidence from the global airline industry," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 124-139.
    21. Purnanandam, Amiyatosh, 2007. "Interest rate derivatives at commercial banks: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1769-1808, September.

    More about this item

    Keywords

    Homebuilder; Lumber futures; Housing demand; Commodity exposure;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jhouse:v:21:y:2012:i:3:p:211-222. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/622881 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.