Dynamic patterns of dry bulk freight spot rates through the lens of a time-varying coefficient model
Transportation Research Part A: Policy and Practice, 2018, vol. 118, issue C, 319-330
To overcome high volatile fluctuations, shipping agents should understand the dynamics of freight rates, which will enhance the management efficiency of their revenues and market risks. In the literature, most vector auto-regression (VAR) and vector error correction (VECM) models of dry bulk freight markets assume that the coefficients are time-invariant. However, the relationships measured by the coefficients could change over time, e.g., due to changing market sentiments. Therefore, this study seeks a time-varying coefficient-error correction model (TVC-ECM) with backwardation degree “coefficient driver,” to unveil some hidden dynamic patterns. In advance, the presumption, that there are two distinct shocks, such as transitory and permanent ones, is suggested based on some recursive VAR model. Then, two empirical findings are derived. First, in the daily cases, the values of time-varying coefficients of the past spot and forward freight agreement (FFA) rates in the prediction equation increase when the market deviates more from the long-run equilibrium. Second, incorporating the information such as backwardation or contango into the traditional adjustment speed coefficient in the VECM framework marginally improves forecasting performance.
Keywords: Time-varying coefficient-error correction model (TVC-ECM); Forward freight agreements (FFA); Backwardation or contango; Forecasting (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:transa:v:118:y:2018:i:c:p:319-330
Ordering information: This journal article can be ordered from
https://shop.elsevie ... _01_ooc_1&version=01
Access Statistics for this article
Transportation Research Part A: Policy and Practice is currently edited by John (J.M.) Rose
More articles in Transportation Research Part A: Policy and Practice from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().