Abstract
While changes in freight rates are usually taken to indicate short-run adjustments in the shipping industry and market, changes in second-hand ship prices are often taken to indicate longer term changes in market conditions and future trading opportunities. This paper addresses the issue of the particular roles of market fundamentals and market sentiment in determining second-hand ship prices. The author tests his hypotheses using data on second-hand ship prices from the dry bulk carrier structure. The author begins with a discussion of the possible ways in which market fundamentals and market sentiment might influence the market for second-hand ships; cointegration analysis is used to test for the expected long-run relationships. Short-run tests are then applied to check the causality between the variables. The results lend support to the market fundamentals hypothesis, but the author stresses that it may be premature to conclude that market sentiment plays no part in the determination of second-hand ship prices.
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