Abstract
Previous studies regarding freight rate dynamics have explored the behaviour of freight rates and their characteristics. Specifically, many studies analyse the relation between freight rates and find that they are cointegrated. In this paper, using different factor models to jointly estimate the dynamics of freight rates, we show that freight rates are not only cointegrated but also share common long-term dynamics. This finding has crucial implications in terms of managing and hedging the risk encountered by shipping companies. For example, a simpler joint model, with a common long-term trend, may be better for characterizing freight rates than a more complicated model, with different long-term trends, that has more parameters and is more difficult to estimate.
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