Earnings yield and predictability in the dry bulk shipping industry

Abstract

We examine the relation between vessel prices, net earnings and holding period returns, in the dry bulk shipping industry. In doing so, we provide a framework for pricing shipping assets, with finite economic lives and also subject to wear and tear. Shipping earnings yields negatively forecast future net earnings growth while there is no consistent evidence of time-varying risk premia. We provide an economic interpretation for the obtained results and argue that the investment decisions of shipowners affect the current price of the asset through the expected cash flow stream, thus implying cash flow predictability.