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Dynamics of time-varying volatility in the dry bulk and tanker freight markets

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  • Wolfgang Drobetz
  • Tim Richter
  • Martin Wambach

Abstract

This study examines whether shocks from macroeconomic variables or asymmetric effects are more suitable for explaining the time-varying volatility in the dry bulk and tanker freight markets or whether both effects should be incorporated simultaneously. Using Baltic Exchange indices during the sample period from March 1999 to October 2011 on a daily basis, we separately analyse the impact of macroeconomic shocks and asymmetric effects on the conditional volatility of freight rates by using a GARCH-X model and an EGARCH model, respectively. Furthermore, we simultaneously investigate both effects by specifying an EGARCH-X model. Assuming not only a normal distribution but also a t -distribution in order to better capture the fat tails of error terms, three important conclusions emerge for modelling the conditional volatility of freight rates: (i) The assumption of a t -distribution is better suited than a normal distribution is. (ii) Macroeconomic factors should be incorporated into the conditional variance equation rather than into the conditional mean equation. In addition, the number of macroeconomic factors that exhibit explanatory power decreases under a t -distribution. (iii) While there seem to be no asymmetric effects in the dry bulk freight market, these effects are strongly pronounced in the tanker freight market. Our empirical findings have important implications for freight rate risk management.

Suggested Citation

  • Wolfgang Drobetz & Tim Richter & Martin Wambach, 2012. "Dynamics of time-varying volatility in the dry bulk and tanker freight markets," Applied Financial Economics, Taylor & Francis Journals, vol. 22(16), pages 1367-1384, August.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:16:p:1367-1384
    DOI: 10.1080/09603107.2012.657349
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    Citations

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    Cited by:

    1. repec:pal:marecl:v:19:y:2017:i:2:d:10.1057_s41278-016-0052-6 is not listed on IDEAS
    2. Andreou, Panayiotis C. & Louca, Christodoulos & Panayides, Photis M., 2014. "Corporate governance, financial management decisions and firm performance: Evidence from the maritime industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 63(C), pages 59-78.
    3. repec:eee:transe:v:115:y:2018:i:c:p:164-212 is not listed on IDEAS
    4. Tsouknidis, Dimitris A., 2016. "Dynamic volatility spillovers across shipping freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 91(C), pages 90-111.
    5. repec:eee:transe:v:112:y:2018:i:c:p:107-124 is not listed on IDEAS
    6. Drobetz, Wolfgang & Merikas, Andreas & Merika, Anna & Tsionas, Mike G., 2014. "Corporate social responsibility disclosure: The case of international shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 71(C), pages 18-44.
    7. Zhang, Xin & Podobnik, Boris & Kenett, Dror Y. & Eugene Stanley, H., 2014. "Systemic risk and causality dynamics of the world international shipping market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 43-53.
    8. Drobetz, Wolfgang & Haller, Rebekka & Meier, Iwan, 2016. "Cash flow sensitivities during normal and crisis times: Evidence from shipping," Transportation Research Part A: Policy and Practice, Elsevier, vol. 90(C), pages 26-49.
    9. Drobetz, Wolfgang & Gounopoulos, Dimitrios & Merikas, Andreas & Schröder, Henning, 2013. "Capital structure decisions of globally-listed shipping companies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 49-76.
    10. repec:eee:transe:v:104:y:2017:i:c:p:36-51 is not listed on IDEAS
    11. Drobetz, Wolfgang & Menzel, Christina & Schröder, Henning, 2016. "Systematic risk behavior in cyclical industries: The case of shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 88(C), pages 129-145.
    12. Konstantinos Gavriilidis & Dimos S. Kambouroudis & Katerina Tsakou & Dimitris S. Tsouknidis, 2018. "Volatility forecasting across tanker freight rates: the role of oil price shocks," Working Papers 2018-27, Swansea University, School of Management.

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