Spillover effects and dynamic correlations between spot and forward tanker freight markets
Li, KX and Qi, G and Shi, W and Yang, Z and Bang, H-S and Woo, S-H and Yip, TL, Spillover effects and dynamic correlations between spot and forward tanker freight markets, Maritime Policy and Management, 41, (7) pp. 683-696. ISSN 0308-8839 (2014) [Refereed Article]
Monitoring and analysing information transmission across different shipping markets is an important tool for participants to predict shipping freight rates, design portfolio investments and manage freight rate risks. The purpose of this article is to investigate spillover effects and dynamic correlations between shipping spot and derivatives markets (tanker forward freight agreement, FFA) under the multivariate generalized autoregressive conditional heteroscedasticity framework. Empirical results show that spillovers in returns are unilateral from one-month FFA to spot markets, while they are bilateral between one-month and two-month FFA markets. However, insignificant mean spillovers between spot and two-month FFA markets are found. Volatility spillover effects among one-month FFA, two-month FFA and spot freight markets are bilateral. By analysing the correlation between different markets, highly persistent and significantly volatile correlations are found. Moreover, time-varying correlations between one-month and two-month FFA markets are much higher than those of between spot and each FFA market. Results from this article will be helpful to improve participantsí predictions of return, volatility and correlation, which are significant for determining hedge strategies. In addition, the management of freight rate risk and portfolio investment can also benefit from the empirical results obtained in this article.
FFA; Mean spillovers; Volatility spillovers; Dynamic correlations