Price Linkages between Spot and Futures Markets for Softwood Lumber

摘要

Price discovery is one of the central functions of futures markets. In this article, we evaluate the relative contributions of spot and futures markets to the price discovery of softwood lumber. We estimate a bivariate vector error correction model using weekly lumber futures and spot price data from 1980 to 2015 and assess the price linkages and dynamic relationship between lumber futures and spot markets. Our empirical results show that the futures market plays a dominant role in price discovery of softwood lumber. In certain periods of the United States-Canada softwood lumber dispute, the lumber spot market also plays a significant role in the price discovery of softwood lumber in the United States.