The Unbiasedness Hypothesis in the Freight Forward Market: Evidence from Cointegration Tests

Authors: Kavussanos Manolis¹; Visvikis Ilias²; Menachof David³

Source: Review of Derivatives Research, Volume 7, Number 3, December 2004 , pp. 241-266(26)

Publisher: Springer

Buy & download fulltext article:

Price: $47.00 plus tax (Refund Policy)

Abstract:

The current paper investigates the unbiasedness hypothesis of Forward Freight Agreement (FFA) prices in the freight over-the-counter (OTC) forward market trades. Cointegration techniques are employed to examine the hypothesis. The results indicate that: FFA prices one and two months before maturity are unbiased predictors of the realised spot freight rates for all investigated shipping routes; three months FFA prices for panamax Pacific routes are unbiased predictors of spot prices, while FFA prices for panamax Atlantic routes are found to be biased predictors of spot prices. This diverse evidence suggests that the validity of the unbiasedness hypothesis depends on the specific characteristics of the market under investigation, the selected trading route and the time to maturity of the contract.

Keywords: forward markets; cointegration; unbiasedness; shipping

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s11147-004-4811-7

Affiliations: 1: Athens University of Economics and Business, 76 Patission St, TK 104 34, Athens, Greece, Email: mkavus@aueb.gr 2: University of Piraeus, Department of Maritime Studies, 80 Karaoli & Dimitriou St, 185 34, Piraeus, Greece, Email: elias10@otenet.gr 3: Cass Business School, City University, 106 Bunhill Row, EC1Y 8TZ, London, UK, Email: d.menachof@city.ac.uk

Publication date: 2004-12-01