Modelling Volatility in Dry Bulk Freight Markets

Memişoğlu R., Başer S. Ö.

27tn Annual Conference of the International Association of Maritime Economists, Athens, Greece, 25 - 28 June 2019

  • Publication Type: Conference Paper / Full Text
  • City: Athens
  • Country: Greece
  • Dokuz Eylül University Affiliated: Yes


Shipping market is considered as a seasonal, cyclical and highly volatile market. Due to the nonstationary and nonlinear nature of freight series and the complexity of influencing factors, it is difficult to analyze the fluctuations in the dry bulk shipping market. Baltic Dry Index (BDI) consisting of sub-indices namely Baltic Supramax Index (BSI), Baltic Panamax Index (BPI) and Baltic Capesize Index (BCI) has been developed by the Baltic Exchange to reflect the overall fluctuation level of international dry bulk shipping market. These indices are considered as one of the leading economic indicators by worldwide institutions such as United Nations Council of Trade and Development (UNCTAD). This study mainly focuses on the econometric modelling of the volatility in dry bulk shipping. Modelling the of volatility of dry bulk shipping will allow us to understand the risk factor and risk structure of the Capesize, Supramax, and Panamax segments of the dry bulk freight market. The purpose of this study is to examine the properties of volatility in the sub-indices of highly respected dry bulk freight index BDI, namely BSI, BPI and BCI return values by employing an Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) based model. The freight index data were received from Bloomberg Professional Database. The results of empirical analysis indicate that both volatility persistence and leverage effect are obvious for all three freight index returns, meaning the impact of external shocks in dry bulk shipping market are asymmetric. Also dry bulk freight market, especially the Capesize  segment, requires a long time for the effects of the shocks to be disperse on their own. Lastly the results revealed high index sensitivity ratios for all three models, which supports the phenomenon of shipping industry being one of the quickest and harshest reflecting sectors to the developments in the global economy.