Are Freight Futures Markets Efficient? Evidence from Imarex

Abstract

The International Maritime Exchange (IMAREX) is the leading regulated marketplace for trading and clearing shipping freight derivatives. We investigate for the first time whether the IMAREX freight futures market is efficient over daily and weekly horizons. To this end, we address the question in both a statistical and an economic setting by employing an extensive dataset of freight futures prices. In the statistical setting, we form both point and interval forecasts by alternative models and evaluate them using a number of statistical tests. We assess the economic significance of the obtained forecasts by means of trading strategies and taking into account the presence of transactions costs. We find that IMAREX is not efficient over the shorter daily horizon. The results have implications for the economics of freight futures markets and pricing of freight derivatives.

Keywords: Freight markets, Freight rate, IMAREX freight futures, Interval forecasts, Market efficiency, Model Confidence Set

JEL Classification: C53, G10, G13, G14