Market Interaction in Returns and Volatilities between Spot and Forward Shipping Freight Markets
Posted: 18 Feb 2014
Date Written: 2004
The lead-lag relationship in both returns and volatilities between spot and futures markets has been investigated extensively in the financial economics literature. Only a limited number of such studies have appeared on forward markets, primarily due to the lack of easy access to empirical data. This paper uses a unique database in over-the-counter Forward Freight Agreements (FFA) to investigate the issue. The underlying commodity is non-storable, being that of a shipping service, with the additional feature of transactions costs being higher in the spot market in comparison to the forward market. These features have interesting implications for the markets. At the practical level, the better understanding of the mean and variance dynamics can improve risk management and budget planning decisions. 2003 Elsevier B.V. All rights reserved.
Keywords: Price discovery; Futures and forward markets; Granger causality; VECM-GARCH; Volatility
JEL Classification: G13; G14; C32
Suggested Citation: Suggested Citation