Time Varying Risks Among Segments of the Tanker Freight Markets

Maritime Economics and Logistics, Vol. V, No. 3, 2003 pp. 227-250

Posted: 18 Feb 2014

See all articles by Manolis G. Kavussanos

Manolis G. Kavussanos

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

Date Written: 2003

Abstract

The aim of this paper is to investigate the relative risks involved in owning and operating tanker vessels of different sizes in world spot and time-charter (TC) markets. Cointegrating Error Correction ARCH models are used to model spot and TC rates for each ship size and the associated time varying risks involved. The advantage of using this class of models for analysis is that the error correction term can capture the short-run dynamic behaviour of rates, while the estimation of time varying volatilities allows for the explicit comparison of risks at each point in time. Indeed, levels and patterns of freight risk are shown to vary over time. Broadly, comparison of these risks across markets point to TC rates having lower volatilities in comparison to the spot rates, and freight rates of larger vessels having higher volatilities compared to the freight volatilities of smaller vessels. Thus, for risk averse owners, wishing to reduce risks, results suggest operating tanker ships in TC rather than spot markets, and using smaller size vessels to diversify the higher risks involved in owning and operating larger size vessels.

Suggested Citation

Kavussanos, Manolis G., Time Varying Risks Among Segments of the Tanker Freight Markets (2003). Maritime Economics and Logistics, Vol. V, No. 3, 2003 pp. 227-250. Available at SSRN: https://ssrn.com/abstract=1435315

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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