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A cointegrating stock trading strategy: application to listed tanker shipping companies

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  • Nektarios A. Michail

    (Cyprus University of Technology, and Cyprus Centre for Business Research)

  • Konstantinos D. Melas

    (University of Central Lancashire)

Abstract

In the current paper, we propose a strategy to trade a portfolio of listed shipping companies in the US market. In particular, we estimate a co-integrating relationship between the weekly stock market returns of a portfolio of tanker shipping companies and the Baltic Tanker Index, exploiting the close relationship between freight rates and the stock market performance of shipping companies. Our results suggest that a trading strategy on the basis of a co-integrating relationship and a simple moving average rule outperforms, by approximately 50%, a standard buy-and-hold strategy in various investment horizons, often by a very wide margin. Given the latter, the results allow us to enhance the current literature on shipping finance by providing evidence of how simple investment strategies can benefit both retail and institutional investors who do not have direct exposure or experience in the shipping industry by allowing them to include shipping stocks in their portfolios.

Suggested Citation

  • Nektarios A. Michail & Konstantinos D. Melas, 2019. "A cointegrating stock trading strategy: application to listed tanker shipping companies," Journal of Shipping and Trade, Springer, vol. 4(1), pages 1-10, December.
    • Handle: RePEc:spr:josatr:v:4:y:2019:i:1:d:10.1186_s41072-019-0049-2
    DOI: 10.1186/s41072-019-0049-2
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    References listed on IDEAS

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    Cited by:

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    2. Michail Nektarios A. & Melas Konstantinos D., 2022. "Geopolitical Risk and the LNG-LPG Trade," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 28(3), pages 243-265, September.

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