Econometric Modelling of the Dry Bulk FFA Price
After 20 years of development, the Forward Freight Agreement (FFA) has become hedging and speculating instruments and plays a significant role for shipping companies to secure their profits and avoid further risk in the volatile shipping market. In order to investigate the factors contributing to the fluctuation of FFA prices, this paper firstly identifies all possible influencing factors. It then investigates the existence of long-run correlation among them on the BPI T/C and BCI C7 routes. Finally, it develops a theoretical Error Correction Model (VECM) to investigate the major factors in the FFA formulation process. Through econometric analysis, it is demonstrated that the FFA prices are affected by the spot rates, the transportation market demand and supply, and other economic indices not only in the short-run, but long-run as well. Importantly, when the FFA price deviates from its long-run equilibrium level in the short-run, the adjusting power will pulling it back in the long-run. It also indicates that the adjusting power has sign asymmetry for the bunker price and size asymmetry for the fleet size. This paper provides a reference to the participants in the FFA market on the causes of fluctuation in FFA prices, which can be used to promote the risk management in FFA market.
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Supplemental Notes:
- This paper was sponsored by TRB committee AT015 Freight Transportation Planning and Logistics.
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Corporate Authors:
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Authors:
- Fan, Lixian
- Luo, Meifeng
- Yin, Jingbo
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Conference:
- Transportation Research Board 94th Annual Meeting
- Location: Washington DC, United States
- Date: 2015-1-11 to 2015-1-15
- Date: 2015
Language
- English
Media Info
- Media Type: Digital/other
- Features: Figures; References; Tables;
- Pagination: 18p
- Monograph Title: TRB 94th Annual Meeting Compendium of Papers
Subject/Index Terms
- TRT Terms: Dry bulk cargo; Econometric models; Freight forwarders; Markets; Prices; Risk management; Shipping
- Uncontrolled Terms: Forward freight agreements
- Subject Areas: Economics; Freight Transportation; I10: Economics and Administration;
Filing Info
- Accession Number: 01555100
- Record Type: Publication
- Report/Paper Numbers: 15-2679
- Files: TRIS, TRB, ATRI
- Created Date: Feb 26 2015 10:03AM