Announcement effects in US lumber futures market
Publication id: ismailova-2020-lumber-futures-announcement
Status: verified
Citation: Ismailova, Z., Etienne, X., Shakya, S., & Mattos, F. (2020). Quantifying the announcement effects in the US lumber futures market. Journal of Forest Economics. Download PDF
Facts¶
Policy hook¶
Commodity markets respond to news. Announcements can shift prices through multiple channels: fundamental information (supply shocks, demand forecasts) or purely sentiment effects (noise). The question is whether significant announcements in the lumber market create measurable price volatility spikes, and whether effects vary by timing or contract characteristics.
Main finding¶
Major announcements in the US lumber futures market generate significant, temporary price volatility spikes lasting approximately 3–5 days. Effects are heterogeneous across contract delivery months: volatility responses are larger for already-volatile contract months, suggesting announcement effects compound existing market uncertainty rather than replacing it.
Data and setting¶
US lumber futures price data (Softwood Lumber Futures, CME Group) with identified announcement events (market structure changes, news releases, policy announcements). Different contract delivery months (near-term vs. deferred contracts) analyzed separately. Sample period captures multiple market regimes and economic conditions.
Research design (plain language)¶
Event-study methodology estimating announcement effect on futures prices and trading volume. Announcement-day returns and volatility compared to non-announcement days. Heterogeneous treatment effects by contract month maturity/volatility. Specifies announcement window (date, duration) to isolate causal effects from confounding factors. Tests whether effects persist or revert quickly, indicating temporary noise versus permanent information processing.
One caveat¶
Announcement selection and dating may introduce measurement error—news is sometimes diffuse across multiple days. Cannot distinguish between different announcement types or information content using purely statistical methods. Study cannot isolate impact on prices versus volume effects without additional constraints.
PDF or DOI¶
Why it matters¶
Commodity futures are used by producers, traders, and speculators to manage risk and profit from price movements. Understanding how news hits these markets matters for both. For mills and producers, the finding shows that announcements cause temporary price swings—hedging strategies need to account for announcement-driven volatility spikes beyond normal market noise. For traders and speculators, it validates event-study strategy viability but also suggests that announcement effects are temporary and reversionary, meaning mean-reversion trading is possible. For market regulators and exchanges, the result indicates that announcement-driven volatility is real, potentially creating opportunities for manipulation or unfair information advantages if some market participants get early access. The contract-specific heterogeneity (deferred months show larger swings) also suggests that information cascades differently across the futures curve, relevant for forward-looking price discovery and hedging horizon selection.