Quantifying the Announcement Effects in the U.S. Lumber Market

The impact of new information from public reports has been widely investigated in many commodity markets, but little attention has been paid to the lumber market. In this paper, we examine the impact of two housing market reports, namely the New Residential Construction (Housing Starts) and the New Residential Sales reports, on the U.S. lumber futures market. Our results suggest that the housing starts report indeed affect lumber market volatility, while the New Residential sales report exerts a minor impact on lumber price volatility. We further find that the effect of the two reports on volatility differs depending on the level of inventory and nature of the news. When the level of inventory is low, larger-than-expected housing starts has the largest effect on lumber volatility. During periods of abundant inventory, lower-than-expected housing starts increases the volatility most. For the new home sales reports, we find that while lower-than-expected sales do not affect the volatility of lumber prices, larger-than-expected sales do increase the volatility.