Economic Information Transmissions between Shipping Markets: New Evidence from Freight Derivatives Markets

Posted: 7 Aug 2016

See all articles by George Alexandridis

George Alexandridis

ICMA Centre, Henley Business School

Satya Sahoo

ICMA Centre, Henley Business School

Ilias Visvikis

Department of Finance, School of Business Administration, American University of Sharjah

Date Written: August 4, 2016

Abstract

Economic return and volatility spillovers of derivatives markets on a number of assets have been extensively examined in the general economics literature. However, there are only a limited number of studies that investigate such interactions between freight rates and the freight futures, and no studies that also consider potential linkages with freight options. This study fills this gap by investigating the economic spillovers between time-charter rates, freight futures and freight options prices in the dry-bulk sector of the international shipping industry. Empirical results indicate the existence of significant information transmission in both returns and volatilities between the three related markets, which we attribute to varying trading activity and market liquidity. The results also point out that, consistent with theory, the freight futures market informationally leads the freight rate market, though surprisingly, freight options lag behind both futures and physical freight rates, thus not fulfilling their price discovery function. The documented three-way economic interactions between the related markets can be used to enhance budget planning and risk management strategies, potentially attract more investors, and thus, improve the liquidity of the freight derivatives market.

Keywords: Freight derivatives, options contracts, price discovery, volatility spillovers, liquidity, impulse responses

JEL Classification: C32, G13, G14

Suggested Citation

Alexandridis, George and Sahoo, Satya and Visvikis, Ilias, Economic Information Transmissions between Shipping Markets: New Evidence from Freight Derivatives Markets (August 4, 2016). Available at SSRN: https://ssrn.com/abstract=2818524 or http://dx.doi.org/10.2139/ssrn.2818524

George Alexandridis

ICMA Centre, Henley Business School ( email )

Whiteknights Campus
P.O. Box 242
Reading, RG6 6BA
United Kingdom
+44 (0) 118 378 4387 (Phone)

Satya Sahoo

ICMA Centre, Henley Business School ( email )

Whiteknights Park
P.O. Box 242
Reading RG6 6BA
United Kingdom
+44(0)7448773811 (Phone)

Ilias Visvikis (Contact Author)

Department of Finance, School of Business Administration, American University of Sharjah ( email )

P.O. Box 26666
Sharjah
United Arab Emirates
+97165154717 (Phone)

HOME PAGE: http://https://www.aus.edu/faculty/dr-ilias-visvikis

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