The Expectations Hypothesis of the Term Structure and Risk Premia in Dry Bulk Shipping Freight Markets; An Egarch-M Approach

Abstract

The availability of shipping freight contracts with different duration offers shipowners, operators, and charterers the choice to trade risk and return according to the characteristics that each of these contracts offers on the utility frontier. The aim of this paper is to investigate the expectations hypothesis of the term structure in the formation of period rates, which requires long-term charter rates to be a function of a series of short-term contracts within the life of a long term contract. The paper uses a battery of tests to examine the validity of the expectations hypothesis for a variety of size categories and different length charter rates over the period January 1980 to August 1997.