Authors: Chih-Chen Kuo; Heng-Chih Chou; Chih-Ching Chang
Addresses: Department of Shipping and Transportation Management, National Taiwan Ocean University, 2 Bei-ning Rd., Keelung, Taiwan ' Department of Shipping and Transportation Management, National Taiwan Ocean University, 2 Bei-ning Rd., Keelung, Taiwan ' Department of Shipping and Transportation Management, National Taiwan Ocean University, 2 Bei-ning Rd., Keelung, Taiwan
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.
Keywords: risk-return trade-off; financial crisis; intertemporal CAPM; capital asset pricing model; ICAPM; EGARCH in mean; EGARCH-M; dry bulk shipping; shipping freight; freight risk premiums; freight returns; ship investments; optimal asset allocation.
International Journal of Shipping and Transport Logistics, 2016 Vol.8 No.4, pp.488 - 506
Received: 25 Apr 2014
Accepted: 29 Dec 2014
Published online: 28 Jun 2016 *