What moves shipping markets?: A variance decomposition of price–charter ratios

Hyun-Tak Lee and Heesung Yun

Maritime Policy & Management, 2022, vol. 49, issue 7, 1027-1042

Abstract: This paper studies the dynamic relationship between ship prices and operating profits by using the fact that these two factors are cointegrated. To conduct an empirical analysis, we select Panamax 76K 5-year second-hand prices and 1-year time charter rates, and then define their linear combination as a log price–charter ratio. We find that almost all variations in price–charter ratios correspond to changing expectations about future returns. This finding implies that the mean reversion in price–charter ratios arises mainly from ship prices as prices tend to move toward operating profits. The implication is that price–charter ratios can be used to schedule ship investment timing. When unexpected down-side risks occur, one preemptive action to minimize additional losses is to lower vessel exposure right away before ship prices plummet in accordance with movements in the freight market.

Date: 2022
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://hdl.handle.net/10.1080/03088839.2021.1940335 (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:marpmg:v:49:y:2022:i:7:p:1027-1042

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TMPM20

DOI: 10.1080/03088839.2021.1940335

Access Statistics for this article

Maritime Policy & Management is currently edited by Dr Kevin Li and Heather Leggate McLaughlin

More articles in Maritime Policy & Management from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().