Efficient Pricing of Ships in the Dry Bulk Sector of the Shipping Industry

Maritime Policy and Management, 2002, Vol. 29, No 3, 303 - 330

Posted: 18 Feb 2014

See all articles by Amir H. Alizadeh

Amir H. Alizadeh

City University London - Sir John Cass Business School

Manolis G. Kavussanos

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

Date Written: 2002

Abstract

The aim of this paper was to investigate the validity of the Efficient Market Hypothesis in conjunction with Rational Expectations in the formation of dry bulk ship prices over the period January 1976-December 1997. Tests for market efficiency include those of orthogonality and unpredictability of excess returns on investments and tests based on the Vector Autoregressive models proposed by Campbell and Shiller. The latter methodology is extended further to a 3-variable Vector Autoregressive model, which is applicable to real assets with limited economic life. Results indicate that prices for newbuilding and second-hand vessels are not determined efficiently in the sense of Fama. Failure of the Efficient Market Hypothesis in the formation of ship prices is explained by the existence of timevarying risk premia, which relate excess returns to investors’ perceptions of risk. These are modelled through the Generalized Autoregressive Conditional Heteroscedasticity in mean (GARCH-M) models. The results have important implications for shipping investment strategies, both in the newbuilding and second-hand markets.

Suggested Citation

Alizadeh, Amir H. and Kavussanos, Manolis G., Efficient Pricing of Ships in the Dry Bulk Sector of the Shipping Industry (2002). Maritime Policy and Management, 2002, Vol. 29, No 3, 303 - 330. Available at SSRN: https://ssrn.com/abstract=1435289

Amir H. Alizadeh

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

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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