A directional relationship between freight and newbuilding markets: A panel analysis
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This article examines the dynamic relationship between international sea freight rate and newbuilding price by employing panel cointegration testing and estimating techniques. The primary question this article addresses is whether the goods (new ships) price and service (sea freight) rate lead or lag one another in a Granger-cause sense, or simultaneously move together. Monthly panel data on three different bulk shipping market segments over the period 1998–2009 are exploited in empirical analysis. Various panel unit root tests demonstrate that the data variables are integrated with unit roots, whereas panel cointegration techniques are used to estimate the dynamic relationship. A positive directional relationship from freight rate to newbuilding price is found, and freight rate is more sensitive to market changes than newbuilding price. These results indicate that investment in new ships is encouraged by a strong freight market.
Keywordscross-market analysis newbuilding price freight rate panel unit root panel cointegration VECM
The authors express their gratitude to the comments received when the preliminary results of this study were presented at the 2007 Annual Meeting of Decision Science Institute and the 2008 International Forum of Shipping, Ports and Airports. They also thank the referees for their comments and suggestions on this article.
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