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Predictive power and unbiasedness of implied forward charter rates

Author

Listed:
  • Amir H. Alizadeh

    (Cass Business School, London, UK)

  • Roar Os Ådland

    (Clarkson Fund Management Ltd, London, UK)

  • Steen Koekebakker

    (School of Management, Agder University College, Norway)

Abstract

This paper examines the efficiency and predictive power of implied forward shipping charter rates. In particular, we examine whether implied forward 6-month time-charter rates, which are derived through the difference between time-charters with different maturities based on the term structure model, are efficient and unbiased predictors of actual future time-charter rates. Using a dataset for the period January 1989 to June 2003, results of different statistical tests, including the cointegration approach, suggest that implied forward rates are in fact unbiased predictors of future time-charter rates in the dry bulk freight market. In addition, it is found that implied forward rates yield superior forecasts compared to alternative univariate and multivariate time series models. However, while the unbiasedness hypothesis is found to hold, on average, we find that chartering strategies based on simple trend-following trading rules in this cyclical market are able to generate economic profits even out-of-sample. This highlights how standard tests for unbiasedness do not always capture cyclical predictable components in the market behaviour. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Amir H. Alizadeh & Roar Os Ådland & Steen Koekebakker, 2007. "Predictive power and unbiasedness of implied forward charter rates," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(6), pages 385-403.
    • Handle: RePEc:jof:jforec:v:26:y:2007:i:6:p:385-403
    DOI: 10.1002/for.1029
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    Cited by:

    1. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    2. Adland, Roar & Alizadeh, Amir H., 2018. "Explaining price differences between physical and derivative freight contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 20-33.
    3. Tezuka, Koichiro & Ishii, Masahiro & Ishizaka, Motokazu, 2012. "An equilibrium price model of spot and forward shipping freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 730-742.

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