IDEAS home Printed from https://ideas.repec.org/a/spr/josatr/v4y2019i1d10.1186_s41072-019-0049-2.html
   My bibliography  Save this article

A cointegrating stock trading strategy: application to listed tanker shipping companies

Author

Listed:
  • Nektarios A. Michail

    (Cyprus University of Technology, and Cyprus Centre for Business Research)

  • Konstantinos D. Melas

    (University of Central Lancashire)

Abstract

In the current paper, we propose a strategy to trade a portfolio of listed shipping companies in the US market. In particular, we estimate a co-integrating relationship between the weekly stock market returns of a portfolio of tanker shipping companies and the Baltic Tanker Index, exploiting the close relationship between freight rates and the stock market performance of shipping companies. Our results suggest that a trading strategy on the basis of a co-integrating relationship and a simple moving average rule outperforms, by approximately 50%, a standard buy-and-hold strategy in various investment horizons, often by a very wide margin. Given the latter, the results allow us to enhance the current literature on shipping finance by providing evidence of how simple investment strategies can benefit both retail and institutional investors who do not have direct exposure or experience in the shipping industry by allowing them to include shipping stocks in their portfolios.

Suggested Citation

  • Nektarios A. Michail & Konstantinos D. Melas, 2019. "A cointegrating stock trading strategy: application to listed tanker shipping companies," Journal of Shipping and Trade, Springer, vol. 4(1), pages 1-10, December.
    • Handle: RePEc:spr:josatr:v:4:y:2019:i:1:d:10.1186_s41072-019-0049-2
    DOI: 10.1186/s41072-019-0049-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1186/s41072-019-0049-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1186/s41072-019-0049-2?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Wolfgang Drobetz & Dirk Schilling & Lars Tegtmeier, 2010. "Common risk factors in the returns of shipping stocks," Maritime Policy & Management, Taylor & Francis Journals, vol. 37(2), pages 93-120, March.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Theodore Syriopoulos & Efthimios Roumpis, 2009. "Asset allocation and value at risk in shipping equity portfolios," Maritime Policy & Management, Taylor & Francis Journals, vol. 36(1), pages 57-78, February.
    4. Andreas Merikas & Dimitrios Gounopoulos & Christos Nounis, 2009. "Global shipping IPOs performance," Maritime Policy & Management, Taylor & Francis Journals, vol. 36(6), pages 481-505, December.
    5. Papapostolou, Nikos C. & Pouliasis, Panos K. & Nomikos, Nikos K. & Kyriakou, Ioannis, 2016. "Shipping investor sentiment and international stock return predictability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 81-94.
    6. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    7. Suleyman Basak & Anna Pavlova, 2016. "A Model of Financialization of Commodities," Journal of Finance, American Finance Association, vol. 71(4), pages 1511-1556, August.
    8. De Bondt, Werner F M & Thaler, Richard, 1985. "Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
    9. Panayides, Photis M. & Lambertides, Neophytos & Savva, Christos S., 2011. "The relative efficiency of shipping companies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(5), pages 681-694, September.
    10. David F. Hendry & Katarina Juselius, 2001. "Explaining Cointegration Analysis: Part II," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 75-120.
    11. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    12. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-618, Nov.-Dec..
    13. Alexandrou, George & Gounopoulos, Dimitrios & Thomas, Hardy M., 2014. "Mergers and acquisitions in shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 61(C), pages 212-234.
    14. Ahmed A. El-Masry & Mojisola Olugbode & John Pointon, 2010. "The exposure of shipping firms’ stock returns to financial risks and oil prices: a global perspective," Maritime Policy & Management, Taylor & Francis Journals, vol. 37(5), pages 453-473, April.
    15. Amir H. Alizadeh & Nikos K. Nomikos, 2006. "Trading strategies in the market for tankers," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(2), pages 119-140, May.
    16. Nikos C. Papapostolou & Nikos K. Nomikos & Panos K. Pouliasis & Ioannis Kyriakou, 2014. "Investor Sentiment for Real Assets: The Case of Dry Bulk Shipping Market," Review of Finance, European Finance Association, vol. 18(4), pages 1507-1539.
    17. Kroner, Kenneth F. & Sultan, Jahangir, 1993. "Time-Varying Distributions and Dynamic Hedging with Foreign Currency Futures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(4), pages 535-551, December.
    18. Koichiro Tezuka & Masahiro Ishii & Motokazu Ishizaka, 2012. "Relationship between CAPM- β and market changes in the Japanese liner shipping industry," Maritime Policy & Management, Taylor & Francis Journals, vol. 39(3), pages 297-319, May.
    19. Costas TH Grammenos & Angelos G Arkoulis, 2002. "Macroeconomic Factors and International Shipping Stock Returns," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 4(1), pages 81-99, March.
    20. Sadorsky, Perry, 1999. "Oil price shocks and stock market activity," Energy Economics, Elsevier, vol. 21(5), pages 449-469, October.
    21. Neophytos Lambertides & Christodoulos Louca, 2008. "Ownership structure and operating performance: evidence from the European maritime industry," Maritime Policy & Management, Taylor & Francis Journals, vol. 35(4), pages 395-409, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Arthur J. Lin & Hai-Yen Chang & Brian Hung, 2022. "Identifying Key Financial, Environmental, Social, Governance (ESG), Bond, and COVID-19 Factors Affecting Global Shipping Companies—A Hybrid Multiple-Criteria Decision-Making Method," Sustainability, MDPI, vol. 14(9), pages 1-29, April.
    2. Michail Nektarios A. & Melas Konstantinos D., 2022. "Geopolitical Risk and the LNG-LPG Trade," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 28(3), pages 243-265, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pouliasis, Panos K. & Papapostolou, Nikos C. & Kyriakou, Ioannis & Visvikis, Ilias D., 2018. "Shipping equity risk behavior and portfolio management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 178-200.
    2. Natanelov, Valeri & McKenzie, Andrew M. & Van Huylenbroeck, Guido, 2013. "Crude oil–corn–ethanol – nexus: A contextual approach," Energy Policy, Elsevier, vol. 63(C), pages 504-513.
    3. Maitra, Debasish & Chandra, Saurabh & Dash, Saumya Ranjan, 2020. "Liner shipping industry and oil price volatility: Dynamic connectedness and portfolio diversification," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 138(C).
    4. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    5. Ansgar Belke & Robert Czudaj, 2010. "Is Euro Area Money Demand (Still) Stable? Cointegrated VAR Versus Single Equation Techniques," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(4), pages 285-315.
    6. Neil R. Ericsson & James G. MacKinnon, 2002. "Distributions of error correction tests for cointegration," Econometrics Journal, Royal Economic Society, vol. 5(2), pages 285-318, June.
    7. Jiranyakul, Komain, 2009. "Economic Forces and the Thai Stock Market, 1993-2007," MPRA Paper 57368, University Library of Munich, Germany.
    8. Shawkat Hammoudeh & Eisa Aleisa, 2004. "Dynamic Relationships among GCC Stock Markets and Nymex Oil Futures," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 250-269, April.
    9. Alexander Schätz, 2010. "Macroeconomic Effects on Emerging Market Sector Indices," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(2), pages 131-169, August.
    10. Asai Manabu & Peiris Shelton & McAleer Michael & Allen David E., 2020. "Cointegrated Dynamics for a Generalized Long Memory Process: Application to Interest Rates," Journal of Time Series Econometrics, De Gruyter, vol. 12(1), pages 1-18, January.
    11. Papież, Monika & Śmiech, Sławomir, 2015. "Dynamic steam coal market integration: Evidence from rolling cointegration analysis," Energy Economics, Elsevier, vol. 51(C), pages 510-520.
    12. Gaolu Zou & K. W. Chau, 2019. "Long- and Short-Run Effects of Fuel Prices on Freight Transportation Volumes in Shanghai," Sustainability, MDPI, vol. 11(18), pages 1-12, September.
    13. Zou, Gao Lu, 2012. "The long-term relationships among China's energy consumption sources and adjustments to its renewable energy policy," Energy Policy, Elsevier, vol. 47(C), pages 456-467.
    14. Phengpis, Chanwit & Apilado, Vince P., 2004. "Economic interdependence and common stochastic trends: A comparative analysis between EMU and non-EMU stock markets," International Review of Financial Analysis, Elsevier, vol. 13(3), pages 245-263.
    15. Hirak Ray & Malay Kanti Ray & Joydeep Biswas, 2009. "Bank, Market and Economic Growth," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 10(2), pages 403-428, July.
    16. Noriega Antonio E. & Ramos Francia Manuel & Rodríguez-Pérez Cid Alonso, 2015. "Money Demand Estimations in Mexico and of its Stability 1986-2010, as well as Some Examples of its Uses," Working Papers 2015-13, Banco de México.
    17. Francisco Rebelo & Ester Gomes da Silva, 2013. "Export variety, technological content and economic performance: The case of Portugal," Papers in Evolutionary Economic Geography (PEEG) 1310, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Jun 2013.
    18. Daniel J. Pastor & Bradley T. Ewing, 2022. "VEC model of water infrastructure in Los Angeles: implications for community resilience and recovery," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 114(1), pages 629-643, October.
    19. Borozan, Djula, 2013. "Exploring the relationship between energy consumption and GDP: Evidence from Croatia," Energy Policy, Elsevier, vol. 59(C), pages 373-381.
    20. Shehu Usman Rano Aliyu, 2010. "Exchange rate volatility and export trade in Nigeria: an empirical investigation," Applied Financial Economics, Taylor & Francis Journals, vol. 20(13), pages 1071-1084.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:josatr:v:4:y:2019:i:1:d:10.1186_s41072-019-0049-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.