Ship Funds as a New Asset Class: An Empirical Analysis of the Relationship between Spot and Forward Prices in Freight Markets

Journal of Asset Management, Vol. 9, No. 2, pp. 102-120, 2008

Posted: 26 Jul 2008

See all articles by Wolfgang Bessler

Wolfgang Bessler

Justus-Liebig-University Giessen

Wolfgang Drobetz

University of Hamburg

Jörg Seidel

University of Hamburg - Faculty of Economics and Business Administration, Chair of Corporate and Ship Finance

Date Written: January 27, 2008

Abstract

Over the last decade, various new asset classes have emerged as alternatives to the more traditional investments. Although they appear attractive at a first glance, there exists hardly any historical performance track record, and experience with the return generating variables is limited. For ship funds and the valuation of shipping projects, the prevailing freight rates are important price-determining factors. Therefore, knowledge about the time series properties of spot and forward freight rates is essential for a better understanding of the return generating process of ship funds. There are, however, several peculiarities. Because shipping is a nonstorable service, forward prices need not to be linked to spot prices by any direct arbitrage relationship. We test the implications of this notion by using data for Panamax size bulk carriers and find that even in informationally efficient markets spot freight rates are highly autocorrelated. In addition, spot and forward freight rates are cointegrated, and the equilibrium is established by spot rates converging to forward rates. An extension of the standard vector error correction model reveals time variation in the adjustment speed. Overall, our empirical findings suggest that the time series properties of freight rates need to be well understood before investing in ship funds. Another important aspect is whether ship funds should hedge their freight rate exposure in the forward market to reduce the return volatility or whether investors can achieve the same outcome by holding ship funds in a portfolio context.

Keywords: asset management, ship funds, freight markets, VEC model

JEL Classification: G12

Suggested Citation

Bessler, Wolfgang and Drobetz, Wolfgang and Seidel, Jörg, Ship Funds as a New Asset Class: An Empirical Analysis of the Relationship between Spot and Forward Prices in Freight Markets (January 27, 2008). Journal of Asset Management, Vol. 9, No. 2, pp. 102-120, 2008. Available at SSRN: https://ssrn.com/abstract=1176201

Wolfgang Bessler

Justus-Liebig-University Giessen ( email )

Center for Finance and Banking
Licher Strasse 74
Giessen, D-35394
Germany
49-641-9922460 (Phone)
49-641-9922469 (Fax)

HOME PAGE: http://wiwi.uni-giessen.de/home/Bessler/

Wolfgang Drobetz

University of Hamburg ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Jörg Seidel (Contact Author)

University of Hamburg - Faculty of Economics and Business Administration, Chair of Corporate and Ship Finance

Von-Melle-Park 5
Hamburg, 20146
Germany

HOME PAGE: http://www.iff-uhh.de/en/team/usf/joerg-seidel.html

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
1,229
PlumX Metrics