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Liquidity risk premium and asset pricing in US water transportation

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  • Panayides, Photis M.
  • Lambertides, Neophytos
  • Cullinane, Kevin

Abstract

The water transportation of freight has been one of the most important sectors in facilitating international trade and contributing to the growth of the world economy. Bearing in mind the importance of the relation between asset returns and liquidity in water transportation, this paper examines this relation within the context of US traded international water freight transportation firms. Using a Fama–MacBeth analysis, it is shown that the illiquidity risk premium is priced in the water transportation sector beyond the Fama and French and market-wide illiquidity risk factors, indicating higher average returns for stocks with greater illiquidity measures. It is also shown that the market-wide illiquidity factor and the Fama–French SMB and HML risk factors are significant in explaining stock returns. In contrast, market risk is found not to be priced in the water transportation sector. The results are also robust to asset pricing tests over two alternative sub-periods.

Suggested Citation

  • Panayides, Photis M. & Lambertides, Neophytos & Cullinane, Kevin, 2013. "Liquidity risk premium and asset pricing in US water transportation," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 3-15.
    • Handle: RePEc:eee:transe:v:52:y:2013:i:c:p:3-15
    DOI: 10.1016/j.tre.2012.11.007
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    2. Hofmann, Erik & Solakivi, Tomi & Töyli, Juuso & Zinn, Martin, 2018. "Oil price shocks and the financial performance patterns of logistics service providers," Energy Economics, Elsevier, vol. 72(C), pages 290-306.
    3. Priyanka Naik & B G Poornima & Y V Reddy, 2020. "Measuring liquidity in Indian stock market: A dimensional perspective," PLOS ONE, Public Library of Science, vol. 15(9), pages 1-17, September.
    4. Drobetz, Wolfgang & Menzel, Christina & Schröder, Henning, 2016. "Systematic risk behavior in cyclical industries: The case of shipping," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 88(C), pages 129-145.
    5. Pouliasis, Panos K. & Papapostolou, Nikos C. & Kyriakou, Ioannis & Visvikis, Ilias D., 2018. "Shipping equity risk behavior and portfolio management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 178-200.
    6. Hsieh, Hui-Ching & Nguyen, Van Quoc Thinh, 2021. "Economic policy uncertainty and illiquidity return premium," The North American Journal of Economics and Finance, Elsevier, vol. 55(C).
    7. Amir Alizadeh & Konstantina Kappou & Dimitris Tsouknidis & Ilias Visvikis, 2014. "Liquidity Risk Premia in the International Shipping Derivatives Market," ICMA Centre Discussion Papers in Finance icma-dp2014-15, Henley Business School, University of Reading.
    8. Alizadeh, Amir H. & Kappou, Konstantina & Tsouknidis, Dimitris & Visvikis, Ilias, 2015. "Liquidity effects and FFA returns in the international shipping derivatives market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 76(C), pages 58-75.

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