Fear index and freight rates in dry-bulk shipping markets

This study constructs a fear index for the dry-bulk shipping market. Principal component analysis and min-max scaling are employed to extract the fear sentiment of the four dry-bulk vessel sectors. The main findings are as follows: (1) the fear index could play as a contrarian predictor of the freig...

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Bibliographic Details
Published inApplied economics Vol. 53; no. 11; pp. 1235 - 1248
Main Authors Wu, Chih-Yuan, Chou, Heng-Chih, Liu, Chiung-Lin
Format Journal Article
LanguageEnglish
Published London Routledge 03.03.2021
Taylor & Francis Ltd
Subjects
asymmetric effect
dry-bulk shipping
Economic analysis
Economic theory
Fear & phobias
fear index
freight rate
Fright
Market sentiment
Markets
Operators
Principal components analysis
Shipping industry
Volatility
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Summary:This study constructs a fear index for the dry-bulk shipping market. Principal component analysis and min-max scaling are employed to extract the fear sentiment of the four dry-bulk vessel sectors. The main findings are as follows: (1) the fear index could play as a contrarian predictor of the freight rate; (2) the fear index spiked sharply responding to the major financial risk events; (3) ship operators are less risk-averse than investors in financial markets, so the asymmetric effect of the fear index on the freight-rate return is unique; and (4) the fright-rate volatility is positively affected by the fear index, and the asymmetry varies by the vessel sizes. These findings demonstrate that the fear index increases the predictability of freight rate, and helps investors to measure the level of risk or stress in the market.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2020.1827140