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Market efficiency in the bulk freight market revisited

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  • Roar Adland
  • Siri Strandenes

Abstract

Given that the freight rate is the price of a transportation service that cannot be traded or stored; the traditional form of the efficient market hypothesis (EMH) does not apply to the freight rate price process. However, the notion of market efficiency still applies in the freight market. In particular, under the hypothesis that the market is semi-strong-form efficient, it should not be possible to make excess profit by taking chartering positions in the freight market based on public information such as past levels of the spot freight rate or the shape of the term structure of freight rates. This paper contributes to the literature by proposing an alternative test of market efficiency in the bulk freight market. We utilize technical analysis based on the history of spot freight rates and investigate the profitability of such chartering strategies for a tanker operator. The chartering decisions are based on identification of the peaks and troughs in the freight market cycles using kernel smoothing of the spot freight rate history. The empirical results suggest that a large tanker operator (e.g. a pool) could have achieved significant profits without investing in ships by trading on such information, although this does not hold in the most recent subset of the sample.

Suggested Citation

  • Roar Adland & Siri Strandenes, 2006. "Market efficiency in the bulk freight market revisited," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(2), pages 107-117, May.
    • Handle: RePEc:taf:marpmg:v:33:y:2006:i:2:p:107-117
    DOI: 10.1080/03088830600612773
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    References listed on IDEAS

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    1. P.H. Kevin Chang & Carol L. Osler, 1995. "Head and shoulders: not just a flaky pattern," Staff Reports 4, Federal Reserve Bank of New York.
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    1. Zheng, Shiyuan & Lan, Xiangang, 2016. "Multifractal analysis of spot rates in tanker markets and their comparisons with crude oil markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 444(C), pages 547-559.
    2. Theodore Syriopoulos & Michael Tsatsaronis & Ioannis Karamanos, 2021. "Support Vector Machine Algorithms: An Application to Ship Price Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 57(1), pages 55-87, January.
    3. Wenming Shi & Kevin X. Li, 2017. "Themes and tools of maritime transport research during 2000-2014," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(2), pages 151-169, February.
    4. Papapostolou, Nikos C. & Pouliasis, Panos K. & Kyriakou, Ioannis, 2017. "Herd behavior in the drybulk market: an empirical analysis of the decision to invest in new and retire existing fleet capacity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 104(C), pages 36-51.
    5. Nomikos, Nikos K. & Doctor, Kaizad, 2013. "Economic significance of market timing rules in the Forward Freight Agreement markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 52(C), pages 77-93.
    6. Goulas, Lambros & Skiadopoulos, George, 2012. "Are freight futures markets efficient? Evidence from IMAREX," International Journal of Forecasting, Elsevier, vol. 28(3), pages 644-659.
    7. 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.
    8. Okan Duru, 2017. "The Origin and Consistency of the Ton–Mile Metric in the Shipping Economics," Logistics, MDPI, vol. 1(1), pages 1-8, February.
    9. Kokosalakis, George & Merika, Anna & Triantafyllou, Anna, 2021. "Energy efficiency and emissions control: The response of the second-hand containerships sector," Energy Economics, Elsevier, vol. 100(C).
    10. Giamouzi, Maria & Nomikos, Nikos K, 2021. "Identifying shipowners’ risk attitudes over gains and losses: Evidence from the dry bulk freight market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    11. Photis M. Panayides, 2006. "Maritime policy, management and research: role and potential," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(2), pages 95-105, May.

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