The Efficiency of Shipping Markets

Elias Karakitsos and Lambros Varnavides
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Elias Karakitsos: University of Cambridge
Lambros Varnavides: Royal Bank of Scotland

Chapter 4 in Maritime Economics, 2014, pp 95-152 from Palgrave Macmillan

Abstract: Abstract In this chapter we explore the issue of whether freight rates and ship prices (newbuilding and secondhand) are ‘efficient’. This is an issue to which academic economists in the field of maritime economics, following similar lines of research in the field of finance, have devoted a great deal of time and effort. The issue is interesting from not only a theoretical point of view, but also a practical one. For the practitioner owner a key question is whether to employ the vessels in the time charter (period market) or the spot market. If freight markets are efficient, the decision that is taken will make no difference to profitability. If markets are inefficient, profit opportunities arise. The question is under what circumstances and when to switch from one market to the other to maximise profits. Similarly, if ship prices are inefficient, an owner can devise strategies to maximise profits. When ship prices are lower than their fundamental value, defined under the hypothesis of market efficiency, excess profits can be made by buying and operating these ships. When ship prices are higher than their fundamental value, it might be profitable to charter vessels rather than buying them.

Keywords: Term Structure; Rational Expectation; Excess Return; Market Efficiency; Capital Asset Price Model (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-38341-9_4

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DOI: 10.1057/9781137383419_4

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