Forecasting Volatility of Tanker Freight Rates Based on Asymmetric Regime-Switching GARCH Models

Lauenstein, Philipp; Walther, Thomas (2016): Forecasting volatility of tanker freight rates based on asymmetric regime-switching GARCH models, in: International Journal of Financial Engineering and Risk Management, Vol. 2, Nr. 3, pp. 172-199. DOI: 10.1504/IJFERM.2016.082978.

29 Pages Posted: 30 Jun 2019

See all articles by Philipp Lauenstein

Philipp Lauenstein

Hamburg School of Business Administration

Thomas Walther

Utrecht University - School of Economics

Date Written: February 9, 2016

Abstract

This paper investigates the performance of various conditional volatility models to forecast the second moment of tanker freight rates. Justified by existing theoretical and empirical evidence, we focus on asymmetric Markov regime-switching models to study the major global routes for long-haul trade of crude oil during the sample period from June 2000 to May 2015. Moreover, in contrast to a number of existing studies, we examine seasonally adjusted freight rates. We find that regime-switching GARCH models outperform their single-regime complements in terms of in-sample fit and out-of-sample forecasting accuracy. In particular, the asymmetric MRS-EGARCH and MRS-APARCH exhibit superior in- and out-of-sample performance. To additionally examine the applicability in freight risk management, we compare Value-at-Risk and Expected Shortfall forecasts. Our results show that accounting for volatility regimes and asymmetry does not enhance the performance of one-day-ahead forecasts of either risk measure for both long and short trading positions.

Keywords: APARCH, asymmetric volatility, EGARCH, Expected Shortfall, GARCH models, Markov regime switching, risk management, seasonal adjustment, tanker freight rates, Value-at-Risk, volatility forecasting

JEL Classification: C32, C52, G17, R41

Suggested Citation

Lauenstein, Philipp and Walther, Thomas, Forecasting Volatility of Tanker Freight Rates Based on Asymmetric Regime-Switching GARCH Models (February 9, 2016). Lauenstein, Philipp; Walther, Thomas (2016): Forecasting volatility of tanker freight rates based on asymmetric regime-switching GARCH models, in: International Journal of Financial Engineering and Risk Management, Vol. 2, Nr. 3, pp. 172-199. DOI: 10.1504/IJFERM.2016.082978., Available at SSRN: https://ssrn.com/abstract=3411698

Philipp Lauenstein

Hamburg School of Business Administration ( email )

Alter Wall 38
Hamburg, 20457
Germany

Thomas Walther (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands

HOME PAGE: http://www.thomas-walther.info

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
206
PlumX Metrics