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Are Spot Freight Rates Stationary?


  • Steen Koekebakker
  • Roar Adland
  • Sigbjørn Sødal


In the recent literature, empirical tests of stationarity of freight rates often conclude that spot freight rates are non-stationary processes. However, many maritime economists would argue that the freight rate cannot exhibit asymptotically explosive behaviour, as implied by non-stationarity, in a perfectly competitive freight market. This paper restates the theoretical arguments behind mean reversion and boundedness of the spot freight rate process and suggests that the failure to reject non-stationarity may be due to the weak power of the tests most frequently used. We employ a non-linear version of the Augmented Dickey-Fuller (ADF) test, based on an exponentially smooth-transition autoregressive model (ESTAR). This test enhances the power against mean-reverting nonlinear alternative hypotheses compared to the linear alternative for traditional ADF tests. Our empirical results show, in line with maritime economic theory, that freight rates in both dry-bulk and tanker markets are non-linear stationary. © 2006 LSE and the University of Bath

Suggested Citation

  • Steen Koekebakker & Roar Adland & Sigbjørn Sødal, 2006. "Are Spot Freight Rates Stationary?," Journal of Transport Economics and Policy, University of Bath, vol. 40(3), pages 449-472, September.
  • Handle: RePEc:tpe:jtecpo:v:40:y:2006:i:3:p:449-472

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    References listed on IDEAS

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    Cited by:

    1. Alizadeh, Amir H. & Huang, Chih-Yueh & van Dellen, Stefan, 2015. "A regime switching approach for hedging tanker shipping freight rates," Energy Economics, Elsevier, vol. 49(C), pages 44-59.
    2. Xin Wang & Stein W. Wallace, 2016. "Stochastic scheduled service network design in the presence of a spot market for excess capacity," EURO Journal on Transportation and Logistics, Springer;EURO - The Association of European Operational Research Societies, vol. 5(4), pages 393-413, December.
    3. Fotis Papailias & Dimitrios D. Thomakos & Jiadong Liu, 2017. "The Baltic Dry Index: cyclicalities, forecasting and hedging strategies," Empirical Economics, Springer, vol. 52(1), pages 255-282, February.
    4. Sødal, Sigbjørn & Koekebakker, Steen & Aadland, Roar, 2008. "Market switching in shipping -- A real option model applied to the valuation of combination carriers," Review of Financial Economics, Elsevier, vol. 17(3), pages 183-203, August.
    5. Prochazka, Vit & Adland, Roar & Wallace, Stein W., 2018. "The value of foresight in the drybulk freight market," Discussion Papers 2018/1, Norwegian School of Economics, Department of Business and Management Science.
    6. Adland, Roar & Jia, Haiying & Lu, Jing, 2008. "Price dynamics in the market for Liquid Petroleum Gas transport," Energy Economics, Elsevier, vol. 30(3), pages 818-828, May.
    7. repec:pal:marecl:v:19:y:2017:i:4:d:10.1057_mel.2016.7 is not listed on IDEAS

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