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The Baltic Dry Index: Cyclicalities, Forecasting and Hedging Strategies

  • Fotis Papailias


    (Queen's University Management School, UK)

  • Dimitrios D. Thomakos


    (Department of Economics, University of Peloponnese, Greece; Rimini Centre for Economic Analysis, Rimini, Italy)

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    The cyclical properties of the annual growth of the Baltic Dry Index (BDI) and their implications for short-to-medium term forecasting performance are investigated. We show that the BDI has a cyclical pattern which has been stable except for a period after the 2007 crisis. This pattern has implications for improved forecasting and strategic management on the future path of the BDI. To illustrate the practicality of our results, we perform an investment exercise that depends on the predicted signs. The empirical evidence supports the presence of the cyclical component and the ability of using forecast signs for improved risk management.

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    Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 65_13.

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    Date of creation: Dec 2013
    Date of revision:
    Handle: RePEc:rim:rimwps:65_13
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    8. Lin, Faqin & Sim, Nicholas C.S., 2013. "Trade, income and the Baltic Dry Index," European Economic Review, Elsevier, vol. 59(C), pages 1-18.
    9. Mario Forni & Marc Hallin & Lucrezia Reichlin & Marco Lippi, 2000. "The generalised dynamic factor model: identification and estimation," ULB Institutional Repository 2013/10143, ULB -- Universite Libre de Bruxelles.
    10. Kavussanos, Manolis G. & Alizadeh-M, Amir H., 2002. "Seasonality patterns in tanker spot freight rate markets," Economic Modelling, Elsevier, vol. 19(5), pages 747-782, November.
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    12. Stock J.H. & Watson M.W., 2002. "Forecasting Using Principal Components From a Large Number of Predictors," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 1167-1179, December.
    13. Harding, Don, 2008. "Detecting and forecasting business cycle turning points," MPRA Paper 33583, University Library of Munich, Germany.
    14. Steen Koekebakker & Roar Adland & Sigbjørn Sødal, 2006. "Are Spot Freight Rates Stationary?," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 40(3), pages 449-472, September.
    15. Adland, Roar & Cullinane, Kevin, 2006. "The non-linear dynamics of spot freight rates in tanker markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(3), pages 211-224, May.
    16. Denning, Karen Craft & Riley, William B. & DeLooze, Jeffrey P., 1994. "Baltic freight futures: Random walk or seasonally predictable?," International Review of Economics & Finance, Elsevier, vol. 3(4), pages 399-428.
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