Skip to main content
padlock icon - secure page this page is secure

Estimating the implied risk premium of U.S.-listed shipping firms

Buy Article:

$48.00 + tax (Refund Policy)

While the water transportation industry is perceived as risk-laden, expected return estimates for shipping firms, based on the capital asset pricing model (CAPM), are found to be ‘remarkably low.’ We apply the implied cost of capital (ICC), defined as the constant discount rate that equates share prices and future cash flows, as an alternative means of shipping expected returns and use these estimates instead, as well as in conjunction with the CAPM to provide fresh evidence on the risk and return characteristics of the shipping industry. An aggregate measure of ICC reveals that the median risk premium of shipping firms between 1983 and 2013 is in the range of 0.94% to 0.08%. The expected return of shipping firms tracks a long-term moving average of the S&P 500 index; nevertheless, shipping returns are below the index return at similar, and at times lower, levels with the 10-year treasury yield. The expected equity premium of the shipping industry implied in the cross-section of ICC estimates and CAPM betas ranges between 1.4% and 0.2%. The persistence of a ‘shipping return paradox’ against a variant of expected return methodologies may indicate the pricing of higher moments in the return distribution of shipping firms beyond the mean-variance framework.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Keywords: CAPM; Water transportation; implied cost of capital; policy; risk; shipping return

Document Type: Research Article

Affiliations: Department of Maritime Studies, Frederick University, Nicosia, Cyprus

Publication date: November 17, 2018

More about this publication?
  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
X
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more