Measuring volatility spillover effects in dry bulk shipping market

Abstract

Dry bulk shipping market, as an indispensable part of maritime supply chains, can be affected by the transport demand from commodity market, the costs from bunker market, the macroeconomic environment, and threats from the competitor market. To analyze such interactions between these markets, this paper proposes the use of a vector-autoregression (VAR) model to explore volatility spillover effects in dry bulk shipping markets in terms of the secondhand ship prices of Capesize, Panamax and Handymax during 2009–2019. The characteristics of sub-segments of dry bulk shipping market are deeply analyzed, which are necessary for asset allocation in shipping industry. A series of numerical experiments are carried out, by means of variance decomposition approach and historical decomposition approach. Results reveal the existence of different responses to shocks in sub-segments of dry bulk shipping market. It is also shown that smaller vessels are more likely to be affected by related markets except the outlier of the relationship between China interest rate and Panamax market. In addition, responses to both negative and positive contributions are discussed. For example, commodity market has a profound effect on dry bulk shipping market when the market is stable, whereas influences of the bunker market represents the volatility of a market. Finally, this paper finds insignificant effects of the US-CNY exchange rate market and the container shipping market on the dry bulk shipping market.