Exploring risk-return relations in dry bulk shipping Online publication date: Tue, 28-Jun-2016
by Chih-Chen Kuo; Heng-Chih Chou; Chih-Ching Chang
International Journal of Shipping and Transport Logistics (IJSTL), Vol. 8, No. 4, 2016
Abstract: This study investigates the risk-return relations in dry-bulk shipping freight, and to analyse how it was influenced by the 2008 financial tsunami. Empirical results show that the shipping freight's risk-return relation, measured by risk premium parameter β, varies by different types of ship. The risk-return relations of capesize freight have changed after the financial tsunami, from high-risk/high-return into high-risk/low-return. In other words, compared to the case of Standard & Poor's 500 (S&P 500), there have been significant declines in the freight risk premiums. Furthermore, the risk premium parameter β is not only affected by the financial tsunami, but also significantly affected by the previous parameter β and previous freight return. The results of this study can make shipping operators aware of the dynamics of risk-return relations among various ships, so as to secure the optimal asset allocation of ship investments.
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