Risk and Volatility Spillover Between Commodity and Freight Market An Application on Capesize Freight Market

Year 2020, Issue: 39, 1 - 22, 30.06.2020

Abdullah Açık , Sadık Özlen Başer

https://doi.org/10.35343/kosbed.703828

Abstract

Uncertainty in freight rates poses great risks for ship and cargo owners. Identifying the factors that affect the volatility of freight is of great importance in reducing risks arising from uncertainty. The aim of this study is to investigate the volatility spillover and risk transmission between commodity prices and freight rates in Capesize market through the causality in variance test. In the study, 3 different transportation routes are included for Capesize freights, while the prices of the 3 main cargo carried in the dry bulk market are considered as commodity prices. Dataset consists of 234 monthly observations and covers the dates between January 2000 and June 2019. According to the results obtained, while unidirectional significant causalities are determined from both iron ore and coal prices to all freight routes, bidirectional significant causalities are determined between wheat prices and freights.

Keywords

Commodity price, volatility spillover, causality in variance

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