Abstract
Abstract Lumber is one of the most essential forest products in the United States. During the first year of the COVID-19 pandemic, lumber prices almost quadrupled, and fluctuations reached record levels. Although market experts have pointed to various drivers of such high price volatility, no firm conclusions have been drawn yet. Using the generalized autoregressive conditional heteroskedasticity-mixed data sampling (GARCH-MIDAS) framework, this study assesses the potential drivers of lumber price volatility, with predictors including the Google Trends Web Search Index, housing starts, US lumber production quantity, and VIX index, representing public attention, housing demand, lumber supply, and macroeconomic concerns, respectively. We have found that housing demand is the key driver of lumber price volatility, followed by public attention. It is worth noting that US lumber supply and macroeconomic concerns have played a modest role in explaining lumber price volatility. Also, forecasting lumber price by using the housing demand variable substantially outperforms others. Market participants, including lumber mills, wholesalers, and home builders can get valuable information from the housing market to manage lumber price risk.
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