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Announcement Effects and the Theory of Storage: An Empirical Study of Lumber Futures

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  • Karali, Berna
  • Thurman, Walter N.

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. We develop a Generalized Least Squares method to jointly analyze simultaneously traded contracts. We find that the unanticipated component of housing starts announcements increases returns on lumber futures contracts. Further, the effects of housing starts shocks decline with lumber inventories and time to delivery. Futures contracts up to four months out respond by a larger amount to the shocks than do more distant ones. For more distant delivery horizons, the effect of housing starts shocks declines linearly with time to delivery.

Suggested Citation

  • Karali, Berna & Thurman, Walter N., 2007. "Announcement Effects and the Theory of Storage: An Empirical Study of Lumber Futures," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9865, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea07:9865
    DOI: 10.22004/ag.econ.9865
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    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. 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.
    6. Farhangdoost, Sara & Etienne, Xiaoli L., 2020. "Time-Varying Storage Announcement Effect in Natural Gas Market," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304476, Agricultural and Applied Economics Association.
    7. Christophe Gouel, 2020. "The Value of Public Information in Storable Commodity Markets: Application to the Soybean Market," American Journal of Agricultural Economics, John Wiley & Sons, vol. 102(3), pages 846-865, May.
    8. 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.
    9. Hayes Dermot & Jacobs Keri & Schulz Lee & Crespi John, 2023. "Resilience of U.S. Cattle and Beef Sectors: Lessons from COVID-19," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 21(1), pages 53-67, May.
    10. 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.
    11. 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).
    12. 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.
    13. 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.

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