Estimating the Structure of Market Reaction to News: Information Events and Lumber Futures Prices

We develop a new event-study technique, the distributional event response model (DERM), appropriate to relatively slowly evolving information events. We apply the model to twelve years of daily lumber futures prices and analyze the effects of three different types of information releases: ("a") monthly housing starts estimates, ("b") aperiodic administrative and judicial announcements about U.S.-Canada trade disputes, and ("c") novel and unprecedented court decisions related to the Endangered Species Act (ESA). The information releases are different in ways that predict their relative speeds of impoundment in prices. We find that housing start events are absorbed more quickly than trade events, which are absorbed more quickly than ESA events. Copyright 2005 American Agricultural Economics Association.