Abstract
This paper investigates synchronicity and idiosyncrasy between the Capesize and Panamax freight rates. To do this, we estimate three dynamic linear models in a state-space model framework including common stochastic trend model, dynamic factor model, and unobserved component model using the data on two dry bulk shipping markets. In particular, the unobserved component model that incorporates both common stochastic trend and common mean-reverting components is newly proposed in this paper. Our estimation results exhibit that the presence of common stochastic trend and cyclical components is significant, indicating strong synchronized dynamics between the Capesize and Panamax freight rates. Furthermore, this paper discusses the parameters instability problem by rolling the estimations whose sample consists of one year daily observations.
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