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Announcement effects and the theory of storage: an empirical study of lumber futures
Author(s) -
Karali Berna,
Thurman Walter N.
Publication year - 2009
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2009.00389.x
Subject(s) - futures contract , economics , futures market , financial economics , econometrics
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.