Do Inventory and Time-to-Delivery Effects Vary Across Futures Contracts? Insights from a Smoothed Bayesian Estimator
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We apply a new Bayesian approach to multiple-contract futures data to allow the inventory and time-to-delivery effects on volatility to vary across contracts. We find a varying negative relationship between lumber inventories and lumber futures price volatility. The inventory effect is smaller for the most recent contracts possibly due to increasing inventories over time. While this approach reveals the downward bias on the inventory effect introduced by restricting this parameter across contracts, it does not change the time-to-delivery effect.