Book Series

Chapter 5: Fractal shipping finance

101 - 125The interest of research since 1913 has not been on shipping finance but focused 'shipping investment policy'. Various theories have been put forward, the consensus being that the more the freight market prospers, the more orders are placed for new ships. This drama is played out again and again after each shipping crisis. Banks that provide finance for ship owners give them the umbrella in the sun and take it back when it rains. There is a lack of theory to examine shipping finance. Taking the concept of the 'joker' from fractal market analysis (FMA), we can describe crises in these terms on this occasion the banking crisis at the end of 2008, but similar examples can be found throughout history of shipping. In this chapter, five shipping finance practices that have been employed since 1950 are described, followed by an account of loan failures leading up to 1984. FMA provides the concepts of black noise and the biblical Joseph and Noah effects. God, in addition to being a ship owner and providing a world which is 2/3 covered by water (and a naval architect) controlled time series in shipping so that they would follow the geometry of His nature... The Hurst exponent is found to be approximately 0.70 for the 257 years of dry cargo freight rates indexed between 1741 and 2007. The key element of this chapter is the risk analysis as defined by Peters (1994), and risk is calculated using MATLAB to examine the term structure of volatility for the dry cargo freight market from 1741 to 2007 and for new building and secondhand ship prices for Aframax tankers from 1976 to 2008. Risk is higher in freight markets than in secondhand values, and new buildings are least risky, although the risk in these two later markets is quite close. Another finding is that long-term investors (over four years) run less risk than short-term investors, which is in direct contrast to traditional finance theory.
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