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

Author

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  • Adland, Roar
  • Cullinane, Kevin

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.

Suggested Citation

  • Adland, Roar & Cullinane, Kevin, 2006. "The non-linear dynamics of spot freight rates in tanker markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(3), pages 211-224, May.
    • Handle: RePEc:eee:transe:v:42:y:2006:i:3:p:211-224
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