Impacts of COVID-19 and contractual changes on the financial performance of lumber futures

The United States lumber futures market has followed a volatile path since 2017. Two key events in this market are the COVID-19 pandemic and the release of newly revised lumber futures contracts in August 2022. This study aims to examine how these two events affect the financial performance of lumber futures. We employ the event study methodology and the generalized autoregressive conditional heteroskedasticity (GARCH) model to explore the market’s reaction. A market model that includes supply and demand factors, along with the GARCH effect, is used to calculate abnormal returns and their associated volatility. A standardized trading volume ratio is also constructed to assess volume effects. The results reveal different patterns of abnormal returns over the event windows: COVID-19 caused significant daily abnormal returns and cumulative negative effects, while new contracts generated positive abnormal returns that declined over time. Second, contractual changes induced immediate abnormal return volatility, whereas COVID-19 led to sustained volatility across longer windows. Lastly, COVID-19 caused below-normal trading volume effects, while the new contracts caused short-lived increases in trading activity above normal levels. These findings can help understand how different market events affect the financial performance of lumber futures, providing valuable insights for market participants.