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Forecasting spot freight rates based on forward freight agreement and time charter contract

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  • Jiao Zhang
  • Qingcheng Zeng
  • Xiaofeng Zhao

Abstract

In this article, the lead--lag relationship in freight rates between spot and forward markets and between spot and time charter (TC) markets was investigated. A hybrid forecasting method for spot freight rates was proposed based on the price discovery functions of the freight forward agreement (FFA) and the TC contract. VECM-based models were developed to analyse the relation between spot rates and FFA and TC rates. Empirical results indicate that cointegration does exist between spot and FFA rates and between spot and TC rates. Furthermore, while both FFA and TC rates are helpful in forecasting spot freight rates, the integration of the two can further improve the forecasting performance of spot freight rates.

Suggested Citation

  • Jiao Zhang & Qingcheng Zeng & Xiaofeng Zhao, 2014. "Forecasting spot freight rates based on forward freight agreement and time charter contract," Applied Economics, Taylor & Francis Journals, vol. 46(29), pages 3639-3648, October.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:29:p:3639-3648
    DOI: 10.1080/00036846.2014.937038
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    Cited by:

    1. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    2. Sel, Burakhan & Minner, Stefan, 2022. "A hedging policy for seaborne forward freight markets based on probabilistic forecasts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 166(C).
    3. Yuting Gong & Xueqin Wang & Mo Zhu & Ying‐En Ge & Wenming Shi, 2023. "Maximum utility portfolio construction in the forward freight agreement markets: Evidence from a multivariate skewed t copula," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(1), pages 69-89, January.
    4. Alexandridis, G. & Sahoo, S. & Visvikis, I., 2017. "Economic information transmissions and liquidity between shipping markets: New evidence from freight derivatives," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 82-104.
    5. Gu, Yimiao & Chen, Zhenxi & Lien, Donald & Luo, Meifeng, 2020. "Quantile hedge ratio for forward freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 138(C).
    6. Zaili Yang & Esin Erol Mehmed, 2019. "Artificial neural networks in freight rate forecasting," Maritime Economics & Logistics, Palgrave Macmillan;International Association of Maritime Economists (IAME), vol. 21(3), pages 390-414, September.
    7. Abouarghoub, Wessam & Nomikos, Nikos K. & Petropoulos, Fotios, 2018. "On reconciling macro and micro energy transport forecasts for strategic decision making in the tanker industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 225-238.
    8. Evangelia Kasimati & Nikolaos Veraros, 2017. "Is there accuracy of forward freight agreements in forecasting future freight rates? An empirical investigation," Working Papers 230, Bank of Greece.

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