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Volatility, correlation and risk spillover effect between freight rates in BCI and BPI markets: Evidence from static and dynamic GARCH-Copula and dynamic CoVaR models

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  • Yuye ZOU
  • Jing XU
  • Yanhui CHEN

Abstract

The dry bulk shipping market plays a crucial role in global trade. To examine the volatility, correlation, and risk spillover between freight rates in the BCI and BPI markets, this paper employs the GARCH-Copula-CoVaR model. We analyze the dynamic behavior of the secondary market freight index for dry bulk cargo, highlighting its performance in a complex financial environment and offering empirical support for the shipping industry and financial markets. The findings reveal that: (1) There are significant differences in correlation across various routes, with the correlation between BCI and BPI routes fluctuating over time. Among all route combinations, C5 and P3A_03 exhibit the highest positive correlation. (2) A one-way risk spillover exists between P1A_03 an C5, while two-way positive risk spillover is observed between other routes. This suggests that when a risk materializes on a specific route, other routes are also exposed to potential risks, with varying intensities of spillover. (3) The distance and geographical location of routes may be key factors influencing the differing intensities of risk spillover. This highlights the need to consider the geographical characteristics of routes in understanding risk transmission. This paper aims to provide risk management strategies based on these empirical findings, assisting shipping companies and investors in developing more effective responses to market volatility.

Suggested Citation

  • Yuye ZOU & Jing XU & Yanhui CHEN, 2025. "Volatility, correlation and risk spillover effect between freight rates in BCI and BPI markets: Evidence from static and dynamic GARCH-Copula and dynamic CoVaR models," PLOS ONE, Public Library of Science, vol. 20(1), pages 1-31, January.
    • Handle: RePEc:plo:pone00:0315167
    DOI: 10.1371/journal.pone.0315167
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