The empirical evidence of the leverage effect on volatility in international bulk shipping market

Yung-Shun Chen and Shiu-Tung Wang

Maritime Policy & Management, 2004, vol. 31, issue 2, 109-124

Abstract: This paper mainly applies Nelson's EGARCH (Exponentially Generalized Autoregressive Conditional Heteroskedasticity) model to investigate the leverage effect in the presence of the international bulk shipping market. The daily return of three different types of bulk vessel in the sampling period selected has been examined. We find that all return series show a significantly negative relation in terms of return and volatility and the leverage effect on volatility is more significant in market downward movement than in market upward movement under the same magnitude of innovation, in addition, the larger vessels have much more leverage effect than smaller vessels contemporaneously. Therefore, it seems to be an inherent nature in the international bulk shipping market that the phenomenon of an asymmetric impact between past innovations and current volatility. This result from the investigation may provide investors with an insight into real characteristics of price return volatility, it is useful for investors to pre-arrange their portfolios of assets, risk management e.g. enabling them to achieve a reduction of investment risk and an increase of operation performance in profit gain.

Date: 2004
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DOI: 10.1080/0308883042000208301

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