Investment timing and trading strategies in the sale and purchase market for ships

Abstract

The aim of this paper is to investigate, for the first time, the performance of trading strategies based on the combination of technical trading rules and fundamental analysis in the sale and purchase market for dry bulk ships. Using a sample of price and charter rates over the period January 1976 to September 2004, we establish the existence of a long-run cointegrating relationship between price and earnings and use this relationship as an indicator of investment or divestment timing decisions in the dry bulk shipping sector. In order to discount the possibility of data snooping biases and to evaluate the robustness of our trading models, we also perform tests using the stationary bootstrap approach. Our results indicate that trading strategies based on earnings–price ratios significantly out-perform buy and hold strategies in the second-hand market for ships, especially in the market for larger vessels, due to higher volatility in these markets.