The Forward Pricing Function of the Shipping Freight Futures Market

The Journal of Futures Markets, May 1999, Vol. 19 No. 3, 353-376

Posted: 18 Feb 2014

See all articles by Nikos K. Nomikos

Nikos K. Nomikos

Cass Business School, City University London

Manolis G. Kavussanos

Athens University of Economics and Business - Department of Accounting and Finance

Date Written: July 17, 2009

Abstract

This article investigates the unbiasedness hypothesis of futures prices in the freight futures market. Being the only market whose underlying asset is a service, it sets it apart from other markets investigated so far in the literature. Cointegration techniques, employed to examine this hypothesis, indicate that futures prices one and two months before maturity are unbiased forecasts of the realized spot prices, whereas a bias exists in the three-months futures prices. This mixed evidence is in agreement with studies in other markets and suggests that the acceptance or rejection of unbiasedness depends on the idiosyncrasies of the market under investigation and on the time to maturity of the contract. Despite the existence of a bias in the threemonths prices, futures prices for all maturities are found to provide forecasts of the reali/ed spot prices that arc superior to forecasts generated from error correction, ARIMA, exponential smoothing, and random walk models. Hence it appears that users of the BIFFEX market receive accurate signals from the futures prices (regarding the future course of cash prices) and can use the information generated by these prices to guide their physical market decisions.

Suggested Citation

Nomikos, Nikos K. and Kavussanos, Manolis G., The Forward Pricing Function of the Shipping Freight Futures Market (July 17, 2009). The Journal of Futures Markets, May 1999, Vol. 19 No. 3, 353-376. Available at SSRN: https://ssrn.com/abstract=1435269

Nikos K. Nomikos

Cass Business School, City University London ( email )

London, EC2Y 8HB
Great Britain

Manolis G. Kavussanos (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission St
TK 104 34 Athens
Greece
0030 210 8203167 (Phone)
0030 210 8228816 (Fax)

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