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Dynamics of the Term Structure and Volatility of Shipping Freight Rates

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  • Amir H. Alizadeh
  • Nikos K. Nomikos

Abstract

This paper investigates the relationship between the dynamics of the term structure and time-varying volatility of shipping freight rates. Using a dataset covering the period from January 1992 to September 2007 and augmented EGARCH models, we find support for the argument that the volatility of freight rates is related to the shape of the term structure of the freight market. Furthermore, it is found that this relationship is asymmetric in the sense that when the freight market is in backwardation, volatility is higher compared to periods when the market is in contango. The results have important implications for freight risk analysis and management. © 2011 LSE and the University of Bath

Suggested Citation

  • Amir H. Alizadeh & Nikos K. Nomikos, 2011. "Dynamics of the Term Structure and Volatility of Shipping Freight Rates," Journal of Transport Economics and Policy, University of Bath, vol. 45(1), pages 105-128, January.
    • Handle: RePEc:tpe:jtecpo:v:45:y:2011:i:1:p:105-128
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    Citations

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    Cited by:

    1. Lim, Kian Guan & Nomikos, Nikos K. & Yap, Nelson, 2019. "Understanding the fundamentals of freight markets volatility," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 130(C), pages 1-15.
    2. Bai, Xiwen & Lam, Jasmine Siu Lee, 2021. "Freight rate co-movement and risk spillovers in the product tanker shipping market: A copula analysis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    3. 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.
    4. Wessam M. T. Abouarghoub & Iris Biefang-Frisancho Mariscal, 2011. "Measuring level of risk exposure in tanker Shipping freight markets," International Journal of Business and Social Research, LAR Center Press, vol. 1(1), pages 20-44, December.
    5. Wetzstein, Brian & Florax, Raymond & Foster, Kenneth & Binkley, James, 2021. "Transportation costs: Mississippi River barge rates," Journal of Commodity Markets, Elsevier, vol. 21(C).
    6. Mitroussi, K. & Abouarghoub, W. & Haider, J.J. & Pettit, S.J. & Tigka, N., 2016. "Performance drivers of shipping loans: An empirical investigation," International Journal of Production Economics, Elsevier, vol. 171(P3), pages 438-452.
    7. Wessam M. T. Abouarghoub & Iris Biefang-Frisancho Mariscal, 2011. "Measuring level of risk exposure in tanker Shipping freight markets," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 1(1), pages 20-44, December.
    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. Gavriilidis, Konstantinos & Kambouroudis, Dimos S. & Tsakou, Katerina & Tsouknidis, Dimitris A., 2018. "Volatility forecasting across tanker freight rates: The role of oil price shocks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 376-391.
    10. Xu, Jane Jing & Yip, Tsz Leung & Marlow, Peter B., 2011. "The dynamics between freight volatility and fleet size growth in dry bulk shipping markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 47(6), pages 983-991.
    11. Giamouzi, Maria & Nomikos, Nikos K, 2021. "Identifying shipowners’ risk attitudes over gains and losses: Evidence from the dry bulk freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    12. Ahrends, Meike & Drobetz, Wolfgang & Nomikos, Nikos K., 2018. "Corporate cash holdings in the shipping industry," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 112(C), pages 107-124.
    13. Roar Adland & Haakon Ameln & Eirik A. Børnes, 2020. "Hedging ship price risk using freight derivatives in the drybulk market," Journal of Shipping and Trade, Springer, vol. 5(1), pages 1-18, December.
    14. Shi, Wenming & Gong, Yuting & Yin, Jingbo & Nguyen, Son & Liu, Qian, 2022. "Determinants of dynamic dependence between the crude oil and tanker freight markets: A mixed-frequency data sampling copula model," Energy, Elsevier, vol. 254(PB).
    15. Bahram Adrangi & Arjun Chatrath & Kambiz Raffiee, 2023. "S&P 500 volatility, volatility regimes, and economic uncertainty," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 1362-1387, October.
    16. Panayiotis Theodossiou & Dimitris Tsouknidis & Christos Savva, 2020. "Freight rates in downside and upside markets: pricing of own and spillover risks from other shipping segments," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 183(3), pages 1097-1119, June.

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