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Can commodity prices predict stock market returns? The case of dry bulk shipping companies

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  • Konstantinos D. Melas

    (University of Western Macedonia
    Metropolitan College
    University of Macedonia)

  • Nektarios A. Michail

    (Central Bank of Cyprus
    Cyprus University of Technology
    European Institute of Management and Finance)

Abstract

We explore the relationship between the returns of 45 dry bulk shipping company stock prices and the main 15 commodities that bulk carriers transport. Using a principal component analysis to reduce the dimensionality of the commodities dataset and a panel methodology, we find that a change in the commodity price principal component would result in a 0.6% change in the returns of the shipping stock prices. Minerals appear to have a stronger impact, as a 1% change in the minerals principal component results in a 1.1% change in the returns. This is mainly due to the fact that minerals account for larger trade volumes in the dry bulk market and they employ mostly bigger vessels, while the price of Brent oil is also an important factor affecting shipping stock prices.

Suggested Citation

  • Konstantinos D. Melas & Nektarios A. Michail, 2024. "Can commodity prices predict stock market returns? The case of dry bulk shipping companies," Journal of Shipping and Trade, Springer, vol. 9(1), pages 1-14, December.
    • Handle: RePEc:spr:josatr:v:9:y:2024:i:1:d:10.1186_s41072-024-00178-9
    DOI: 10.1186/s41072-024-00178-9
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    More about this item

    Keywords

    Shipping; Dry bulk market; Commodities; Principal component analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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