The dynamic impacts of skewness on the risk–return relationship in the dry bulk spot freight rates and FFAs

Xiaolin Sun, Jun Ma, Haifeng Guo and Hailong Liu

Applied Economics, 2023, vol. 55, issue 18, 1991-2004

Abstract: This paper examines the dynamic impacts of skewness on the risk–return relationship among dry bulk spot freight rates and the corresponding forward freight agreements (FFA) markets. We use swift Skewed Generalized T distribution under the GARCH-in-mean (GARCH-M) model to capture the properties of time-varying skewness, pure risk, and volatility spillovers among the dry bulk vessels. Our findings clarify that skewness price, as an endogenous variable, which is opposite to the pure risk price, illustrates the conflicting nexus of risk and return in theory and empirical study. Additionally, the mutual spillover effects among all the examined markets reveal that to what extent the returns represent compensation for risk, and to what extent the interaction of dry bulk spot and its FFAs affects the pricing. Our results provide market participants understanding the real diversity of risk–return relationships of shipping markets regarding risk aversion and investments.

Date: 2023
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DOI: 10.1080/00036846.2022.2100873

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