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The non-linear dynamics of spot freight rates in tanker markets

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  • Adland, Roar
  • Cullinane, Kevin
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    Abstract

    The purpose of this paper is to investigate the dynamics of the freight rate in the oil transportation markets using a general non-parametric Markov diffusion model. The empirical results suggest that the dynamics of the spot freight rate in the oil transportation market can best be described by a non-linear stochastic model. We show that the spot freight rate is mean reverting only in the extremes of the empirical range and that the volatility of the freight rate changes increases with the level of the freight rate. The former result, which implies that the spot freight rate process behaves like a Martingale over most of its empirical range, can explain why non-stationarity is difficult to reject over short samples, yet the spot freight rate process is globally mean reverting as implied by maritime economic theory.

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    Bibliographic Info

    Article provided by Elsevier in its journal Transportation Research Part E: Logistics and Transportation Review.

    Volume (Year): 42 (2006)
    Issue (Month): 3 (May)
    Pages: 211-224

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    Handle: RePEc:eee:transe:v:42:y:2006:i:3:p:211-224

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    Keywords: Tanker markets Freight rates Non-linear dynamics Oil tranportation Markov Mean reversion;

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    Cited by:
    1. Adland, Roar & Jia, Haiying & Lu, Jing, 2008. "Price dynamics in the market for Liquid Petroleum Gas transport," Energy Economics, Elsevier, vol. 30(3), pages 818-828, May.
    2. Engelen, Steve & Norouzzadeh, Payam & Dullaert, Wout & Rahmani, Bahareh, 2011. "Multifractal features of spot rates in the Liquid Petroleum Gas shipping market," Energy Economics, Elsevier, vol. 33(1), pages 88-98, January.
    3. Xu, Jane Jing & Yip, Tsz Leung & Marlow, Peter B., 2011. "The dynamics between freight volatility and fleet size growth in dry bulk shipping markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 983-991.
    4. Fotis Papailias & Dimitrios D. Thomakos, 2013. "The Baltic Dry Index: Cyclicalities, Forecasting and Hedging Strategies," Working Paper Series 65_13, The Rimini Centre for Economic Analysis.
    5. Okan Duru & Sheng Huang & Emrah Bulut & Shigeru Yoshida, 2013. "Multi-layer quality function deployment (QFD) approach for improving the compromised quality satisfaction under the agency problem: A 3D QFD design for the asset selection problem in the shipping indu," Quality & Quantity: International Journal of Methodology, Springer, vol. 47(4), pages 2259-2280, June.
    6. Tezuka, Koichiro & Ishii, Masahiro & Ishizaka, Motokazu, 2012. "An equilibrium price model of spot and forward shipping freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 730-742.
    7. Alizadeh, Amir H. & Talley, Wayne K., 2011. "Vessel and voyage determinants of tanker freight rates and contract times," Transport Policy, Elsevier, vol. 18(5), pages 665-675, September.
    8. Garrido, Rodrigo A., 2007. "Procurement of transportation services in spot markets under a double-auction scheme with elastic demand," Transportation Research Part B: Methodological, Elsevier, vol. 41(9), pages 1067-1078, November.
    9. Wang, He & Huang, Simin & Liu, Zhen & Zheng, Li, 2013. "Optimal tanker chartering decisions with spot freight rate dynamics considerations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 109-116.
    10. Amir Alizadeh & Wayne Talley, 2011. "Microeconomic determinants of dry bulk shipping freight rates and contract times," Transportation, Springer, vol. 38(3), pages 561-579, May.
    11. Jørgensen, Peter Løchte & De Giovanni, Domenico, 2008. "Time Charters with Purchase Options in Shipping: Valuation and Risk Management," Finance Research Group Working Papers F-2008-05, University of Aarhus, Aarhus School of Business, Department of Business Studies.

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