Do global extreme hazards and related attention lead to financial risks in the shipping market?

Minhua Yang and Di Lu

Applied Economics, 2025, vol. 57, issue 35, 5374-5394

Abstract: This paper investigates the impacts of extreme hazards on the shipping market in terms of freight rates. We develop a unique measure of abnormal freight rate occurred in the period of extreme hazard by introducing the concept of abnormal return in the finance field and find that such impacts of extreme hazards tend to be positive. The impacts are attributed to systematic risks in the shipping market due to increasing costs and decreasing supply. We observe similar associations between individuals’ attention to hazards and freight rates, which are related to stakeholders’ expectations and thus cause non-systematic risks in the shipping market. Unlike the systematic risk, which has short-term effects on the freight rates and starts to fade in three months, the non-systematic risks caused by attention is long-lived. Stakeholders require higher premium for higher systematic and non-systematic risks in the shipping market. The impacts of extreme hazards and attention remain positive when the hazards are associated with the shipping market, non-Asia market, environmental pollution, and seasonal effects. Our results are robust when considering alternative measures of freight rates, potential endogeneity of COVID-19 and macroeconomic conditions. We provide stakeholders with suggestions on pricing, environmental protection, decision-making and market-forecasting.

Date: 2025
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DOI: 10.1080/00036846.2024.2364925

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