Sentiment-Augmented Supply and Demand Equations for the Dry Bulk Shipping Market

Nektarios A Michail,Konstantinos D Melas

doi:10.3390/economies9040171

Nektarios A Michail, Konstantinos D Melas

Open Access

https://doi.org/10.3390/economies9040171

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Abstract

We present, for the first time in the literature, empirical estimates of the supply and demand curves for the ocean-going dry bulk sector, using a three-stage least squares methodology. Furthermore, we augment these functions with sentiment, which appears to have a positive and significant impact on supply. This supports the view that the outlook that shipowners have about the market will undoubtedly influence their decisions regarding purchasing vessels or bringing them out of lay up. Thus, our results highlight the fact that future expectations have an impact on current pricing, albeit indirectly, through their impact on the supply side. Our results further enhance the behavioral economics literature and provide important insights for both academics and professionals.

Highlights

Seaborne trade accounts for more than the 80% of goods transported globally (UNCTAD 2019), its importance it is not solely entrenched in the maritime economics field
The results suggest that, while the standard postulates of economic theory hold, sentiment has a significant effect on the quantity of available vessels, suggesting that a positive view about the market could bring vessels from lay ups and increase orders
We presented extended empirical estimates of the supply and demand functions in shipping

Summary

Introduction

Seaborne trade accounts for more than the 80% of goods transported globally (UNCTAD 2019), its importance it is not solely entrenched in the maritime economics field. The three reasons listed in the previous sentence appear to drive shipowners to trust their intuition when it comes to investment decisions, given that accurate future returns cannot be ex ante statistically calculated It was Papapostolou et al (2014) who provided evidence on the existence of shipping market sentiment and its relationship with contrarian trading strategies in the dry bulk market. In the current research, other than presenting current empirical estimates of supply and demand curves for the sea transport sector, we augment them, again for Economies 2021, 9, 171 the first time in the literature, with market sentiment to study the impact it can have on the supply and demand functions of the dry bulk market, and subsequently to freight rates. The remainder of this paper is organized as follows: Section 2 provides a review of the literature on the issue, Section 3 describes the methodology and the data used, Section 4 discusses the empirical results obtained and Section 5 makes conclusions on the findings

Literature Review

Estimating Supply and Demand

A Look at the Data

Sentiment-Augmented Supply and Demand

Findings

Conclusions