The Baltic Dry Index: Cyclicalities, Forecasting and Hedging Strategies
Quantf Research Working Paper Series No. WP10/2014
38 Pages Posted: 21 Jul 2013 Last revised: 2 Jun 2014
Date Written: July 20, 2013
The cyclical properties of the annual growth of the Baltic Dry Index (BDI) and their implications for short-to-medium term forecasting performance are investigated. We show that the BDI has a cyclical pattern which has been stable except for a period after the 2007 crisis. This pattern has implications for improved forecasting and strategic management on the future path of the BDI. To illustrate the practicality of our results, we perform an investment exercise that depends on the predicted signs. The empirical evidence supports the presence of the cyclical component and the ability of using forecast signs for improved risk management.
Keywords: Baltic Dry Index, Commodities, Concordance, Cyclical Analysis, Forecasting, Turning Points
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