A study of the volatility in the dry bulk market

Abstract

This thesis aims to measure and analyze the volatility of the dry bulk freight spot market. Empirical research is conducted by using samples of daily observations from 1985 to 2016. We find the return series are stationary and heteroscedastic. We use AR-GARCH type of models and compare different model specifications. We conclude that bigger ships are riskier and their underlying dynamics are more complex. Shocks are very persistent in the dry bulk freight market, but decrease with the vessel size. We find positive news to have higher impact on the volatility, as predicted by the short-term supply-and-demand model. In Capesize market higher risk leads to lower return. When the market gets extremely volatile, our models systematically underestimate the volatility as the vessel size increases.