Abstract
In the current paper, we propose a strategy to trade a portfolio of listed shipping companies in the US market. In particular, we estimate a co-integrating relationship between the weekly stock market returns of a portfolio of tanker shipping companies and the Baltic Tanker Index, exploiting the close relationship between freight rates and the stock market performance of shipping companies. Our results suggest that a trading strategy on the basis of a co-integrating relationship and a simple moving average rule outperforms, by approximately 50%, a standard buy-and-hold strategy in various investment horizons, often by a very wide margin. Given the latter, the results allow us to enhance the current literature on shipping finance by providing evidence of how simple investment strategies can benefit both retail and institutional investors who do not have direct exposure or experience in the shipping industry by allowing them to include shipping stocks in their portfolios.
Highlights
In the current paper, we propose a strategy to trade a portfolio of listed shipping companies in the United States (US) market
(2019) 4:9 listed in the US stock markets. We find that these companies exhibit a long-run common path with the Baltic Tanker Index
We propose a long-short trading strategy on the basis of a cointegration model and a simple moving average rule, which appears to outperform the classic buy-and-hold approach across various investment horizons, often by a wide margin
Summary
We propose a strategy to trade a portfolio of listed shipping companies in the US market. We propose a long-short trading strategy on the basis of a cointegration model and a simple moving average rule, which appears to outperform the classic buy-and-hold approach across various investment horizons, often by a wide margin.
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