Are Spot Freight Rates Stationary?
AbstractIn the recent literature, empirical tests of stationarity of freight rates often conclude that spot freight rates are non-stationary processes. However, many maritime economists would argue that the freight rate cannot exhibit asymptotically explosive behaviour, as implied by non-stationarity, in a perfectly competitive freight market. This paper restates the theoretical arguments behind mean reversion and boundedness of the spot freight rate process and suggests that the failure to reject non-stationarity may be due to the weak power of the tests most frequently used. We employ a non-linear version of the Augmented Dickey-Fuller (ADF) test, based on an exponentially smooth-transition autoregressive model (ESTAR). This test enhances the power against mean-reverting nonlinear alternative hypotheses compared to the linear alternative for traditional ADF tests. Our empirical results show, in line with maritime economic theory, that freight rates in both dry-bulk and tanker markets are non-linear stationary. © 2006 LSE and the University of Bath
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by London School of Economics and University of Bath in its journal Journal of Transport Economics and Policy.
Volume (Year): 40 (2006)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.bath.ac.uk/e-journals/jtep
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.