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Information and Price Response in Storable Commodity Futures Markets: An Application to Lumber Contracts
| Content Provider | Semantic Scholar |
|---|---|
| Author | Karali, Berna |
| Copyright Year | 2007 |
| Abstract | Karali, Berna. Information and Price Response in Storable Commodity Futures Markets: An Application to Lumber Contracts. (Under the direction of Walter N. Thurman.) Market efficiency and the theory of storage are key concepts in understanding commodity price dynamics. Market efficiency explains how well-functioning markets process new information, and the theory of storage explains price dynamics of storable commodities. This dissertation combines these two concepts to explain the impact of new information and the effect of storage on futures prices. A theoretical model for storage equilibrium is developed. It is shown that storage decisions are affected by expected prices and market conditions in future periods. The entire price profile changes due to a shock with the largest change being in the period when the shock is observed. Further, the price response depends on inventories carried in that period. With low levels of carry-in, the price change due to a shock is larger. The lumber futures market is analyzed empirically. A Generalized Least Squares method that allows joint analysis of all traded contracts, accounting for contemporaneous correlation, is developed. The first empirical analysis studies the price response due to an unobservable information flow. It is shown that lumber futures contracts are more volatile when lumber inventories are smaller, and less volatile when inventories are larger. Further, the price volatility of lumber futures contracts becomes higher as contracts approach delivery. The second empirical analysis studies the price response due to an observable information flow, housing starts announcements, and its dependence on inventories. It is shown that housing starts announcements convey new information to the market: the unanticipated component of the announcement is positively related to the daily return on lumber contracts. The effects of these shocks decline with inventories. Near-delivery contracts respond by a larger amount to shocks than do distant-delivery contracts. Housing starts shocks are found to have the same impact on daily returns for several near-delivery contracts. However, their effect declines with time to delivery for more distant contracts. Information and Price Response in Storable Commodity Futures Markets: An Application to Lumber Contracts |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://repository.lib.ncsu.edu/bitstream/handle/1840.16/4215/etd.pdf?isAllowed=y&sequence=1 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
