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Liquidity Risk Premia in the International Shipping Derivatives Market

Author

Listed:
  • Amir Alizadeh

    (Cass Business School)

  • Konstantina Kappou

    (ICMA Centre, Henley Business School, University of Reading)

  • Dimitris Tsouknidis

    (Regents University London)

  • Ilias Visvikis

    (World Maritime University)

Abstract

The study examines the existence of liquidity risk premia on freight derivatives returns. The Amihud liquidity ratio and bid-ask spreads are utilized to assess the existence of liquidity premia. Other macroeconomic variables are used to control for market risk. Results indicate that liquidity risk is priced and both liquidity measures have a significant role in determining freight derivatives returns. Consistent with expectations, both liquidity measures are found to have positive and significant effects on the returns of near-month freight derivatives contracts. The results have important implications for modeling freight derivatives returns, and consequently, for trading and risk management purposes.

Suggested Citation

  • 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.
    • Handle: RePEc:rdg:icmadp:icma-dp2014-15
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    References listed on IDEAS

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    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.

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    More about this item

    Keywords

    forward freight agreements; liquidity risk; bid-ask spreads; shipping; panel data;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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