Understanding the fundamentals of freight markets volatility

Kian Guan Lim, Nikos K. Nomikos and Nelson Yap

Transportation Research Part E: Logistics and Transportation Review, 2019, vol. 130, issue C, 1-15

Abstract: We analyse empirically the drivers of freight market volatility. We use several macroeconomic and shipping-related factors that are known to affect the supply and demand for shipping and examine their impact on the term structure of freight options implied volatilities (IV). We find that the level of IVs is affected by the level of the spot rate, the slope of the forward curve, as well as by both demand and supply factors, especially the former. We demonstrate that the relation between the volatility of futures prices and the slope of the forward curve is non-monotonic and convex, that is, it has a V-shape. In general, anticipation of economic growth and of a stronger freight market reduces IV whereas higher uncertainty and anticipation of excess shipping capacity may increase IV. Panel regressions as well as a series of robustness tests produce strong validation of the results.

Keywords: Freight options; Implied volatility; Economic modelling; Fundamental analysis (search for similar items in EconPapers)
JEL-codes: G13 R40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:130:y:2019:i:c:p:1-15

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DOI: 10.1016/j.tre.2019.08.003

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