The Unbiasdness Hypothesis in the Freight Forward Market: Evidence from Cointegration Tests

Posted: 12 Feb 2014

See all articles by Ilias Visvikis

Ilias Visvikis

Independent

David A Menachof

Hull University Business School (HUBS); City University London - Sir John Cass Business School

Manolis G. Kavussanos

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

Date Written: 2004

Abstract

The current paper investigates the unbiasedness hypothesis of Forward Freight Agreement (FFA) prices in the freight over-the-counter (OTC) forward market trades. Cointegration techniques are employed to examine the hypothesis. The results indicate that: FFA prices one and two months before maturity are unbiased predictors of the realised spot freight rates for all investigated shipping routes; three months FFA prices for panamax Pacific routes are unbiased predictors of spot prices, while FFA prices for panamax Atlantic routes are found to be biased predictors of spot prices. This diverse evidence suggests that the validity of the unbiasedness hypothesis depends on the specific characteristics of the market under investigation, the selected trading route and the time to maturity of the contract.

Keywords: forward markets, cointegration, unbiasedness, shipping.

JEL Classification: G13, G14, C32

Suggested Citation

Visvikis, Ilias and Menachof, David A and Kavussanos, Manolis G., The Unbiasdness Hypothesis in the Freight Forward Market: Evidence from Cointegration Tests (2004). Review of Derivatives Research, Vol. 7, No. 3, 2004, pp 241-266. Available at SSRN: https://ssrn.com/abstract=1435299

Ilias Visvikis

Independent ( email )

No Address Available

David A Menachof

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

HOME PAGE: http://www.hull.ac.uk

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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