Accuracy of forward freight agreements in forecasting future freight rates

Evangelia Kasimati and Nikolaos Veraros

Applied Economics, 2018, vol. 50, issue 7, 743-756

Abstract: Participants in the maritime industry place much interest in the Forward Freight Agreements (FFA/FFAs), being an indispensable tool for hedging shipping freight risk. Our article innovates by directly comparing the FFA predictions with their actual future settlement prices as well as by examining contracts going forward as far as next calendar year. We combine straightforward comparison measurements with cointegration analysis to test for the accuracy and efficiency of the FFA projections. We find that FFAs display limited usefulness in predicting future freights, only slightly superior than simple naïve models. The shorter the contract period and the smaller the vessel the better the forecast. We also find FFAs being relatively good predictors of future market direction but missing the turning points of the market cycles.

Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/00036846.2017.1340573 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:50:y:2018:i:7:p:743-756

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036846.2017.1340573

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().