Analyzing the interactions between spot and forward freight agreement (FFA) prices in the dry bulk shipping is important as they play a significant role for shipping companies to secure their profits and avoid potential risks in the volatile market. By applying the vector autoregression (VAR) and the vector error correction model (VECM), this paper identifies the long-run and mutual causal relationship between the spot and FFA prices on the BPI T/C and BCI C7 routes. Along with these cointegrating rates, exogenous factors such as the market demand and supply and some economic indices are also recognized as contributing variables for the dynamic movement of the spot and FFA prices. Importantly, the mean-reverting process is justified on both routes with different mechanisms. When the spot and FFA prices deviate from their equilibrium level in the short run, they will be adjusted to their long-run equilibrium more directly and clearly on the BPI T/C route than those on the BCI C7 route. It also indicates that this adjusting power has direction and size asymmetries on both routes. In addition, the impulse analysis indicates that the spot rate is more volatile than its corresponding FFA prices confronting innovations. The results of this study provide a reference to the participants in the dry bulk shipping market on the causes of fluctuation in spot and FFA prices and their interactions, which can be used to promote the risk management in the market.
Dynamics and interactions between spot and forward freights in the dry bulk shipping market
Maritime Policy & Management ; 44 , 2 ; 271-288
2017-02-17
18 pages
Aufsatz (Zeitschrift)
Elektronische Ressource
Englisch
Dry bulk , FFA , VAR , VECM model , impulse analysis
Shipping interests and freights
Engineering Index Backfile | 1931
|Coal shipping freights in 1930
Engineering Index Backfile | 1931
The impact of COVID-19 on shipping freights: asymmetric multifractality analysis
Taylor & Francis Verlag | 2023
|Fast freights speed war traffic
Engineering Index Backfile | 1943
Springer Verlag | 2023
|