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Maximum utility portfolio construction in the forward freight agreement markets: Evidence from a multivariate skewed t copula

Citation

Gong, Y and Wang, X and Zhu, M and Ge, Y and Shi, W, Maximum utility portfolio construction in the forward freight agreement markets: Evidence from a multivariate skewed t copula, The Journal of Futures Markets, 43 pp. 69-89. ISSN 0270-7314 (2022) [Refereed Article]


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Copyright Statement

2022 Wiley Periodicals LLC.

DOI: doi:10.1002/fut.22378

Abstract

We form portfolios consisting of diverse quarterly forward freight agreement (FFA) contracts to maximize the market participant's expected utility. The empirical findings indicate that individual FFA returns display clear autocorrelation, seasonality, fat tail, and heteroscedasticity. The multivariate positively skewed t copula is suggested for constructing maximum utility FFA portfolios, implying that the constituent FFA returns exhibit higher correlations when they rise together. The out-of-sample trading strategy performance metrics and various robustness checks further indicate that the aforementioned copula performs best and robustly for all portfolios. These findings provide profound methodological and managerial implications for market participants to improve risk management.

Item Details

Item Type:Refereed Article
Keywords:dependence modeling, expected utility function, forward freight agreement, portfolio construction, risk diversification
Research Division:Commerce, Management, Tourism and Services
Research Group:Transportation, logistics and supply chains
Research Field:Maritime transportation and freight services
Objective Division:Transport
Objective Group:Water transport
Objective Field:International sea freight transport (excl. live animals, food products and liquefied gas)
UTAS Author:Shi, W (Dr Wenming Shi)
ID Code:153188
Year Published:2022
Deposited By:Maritime and Logistics Management
Deposited On:2022-09-13
Last Modified:2022-12-14
Downloads:0

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