The Eye in the Sky - Freight Rate Effects of Tanker Supply

We show how the evolution of crude oil tanker freight rates depends on the employment status and geographical position of the fleet of very large crude oil carriers (VLCCs). We provide a novel measure of short-term capacity in the voyage charter market which is a proxy for the percentage of vessels available for orders. We find that our capacity measure explains parts of the freight rate evolution at weekly horizons, where traditional supply measures are uninformative. The fact that freight rates directly influence shipowners’ profitability and charterers’ expenditures makes our measure particularly relevant for these groups of market participants

The use of deep friction massage with olive oil as a means of prevention and treatment of sports injuries in ancient times

The aim of this research was to analyse the use of olive oil as a means of prevention and treatment of sports injuries in the ancient world. The method adopted was based on a thorough study of Greek and world literature. Writings of major ancient philosophers and physicians such as Hippocrates, Aristotle, Philostratus, and Lucian have been analysed in depth. According to the results, the use of massage, together with olive oil rub, helped to reduce muscle fatigue, to remove lactic acid, and to prevent the occurrence of sports injuries through flexibility provided to the skin of athletes. The therapeutic use of oil in the ancient world was fully recognized; and as a result Athenian athlothetes (sponsors of sporting events) provided free oil to all sport facilities where athletes could make free use of it [1]

Measuring Systemic Risk in the European Banking Sector: A copula CoVar approach

We propose a new methodology based on copula functions to estimate CoVaR, the Valueat-Risk (VaR) of the financial system conditional on an institution being under financial distress. Our Copula CoVaR approach provides simple, closed-form expressions for various definitions of CoVaR for a broad range of copula families and allows the CoVaR of an institution to have time-varying exposure to its VaR. We extend this approach to estimate other “co-risk” measures such as Conditional Expected Shortfall (CoES). We focus on a portfolio of large European banks and examine the existence of common market factors triggering systemic risk episodes. Further, we analyse the extent to which bank-specific characteristics such as size, leverage, and equity beta are associated with institutions’ contribution to systemic risk and highlight the importance of liquidity risk at the outset of the financial crisis in summer 2007. Finally, we investigate the link between macroeconomy and systemic risk and find that changes in major macroeconomic variables can contribute significantly to systemic risk

Earnings Yield and Predictability in the Dry Bulk Shipping Industry

We examine the relation between vessel prices, net earningsand holding period returns in the dry bulk shipping industry. In doing so, we provide a framework for pricing shipping assets,with finite economic lives and also subject to wear and tear.Shipping earnings yields negatively forecast future net earnings growth while there is no consistent evidence of time-varying risk premia. We provide an economic interpretation for the obtained resultsand argue that the investment decisions of shipowners affect the current price of the asset through the expectedcash flow stream,thus implying cash flow predictabilit

Agricultural Reforms and Use of Market Mechanisms for Risk Management

In July 2004, the Members of the World Trade Organisation (WTO) unanimously agreedon a framework for liberalising farm trade under the Doha Development Agenda with a view to establishing a fair and market-orientated trading system. The ultimate objective is to promote living standards, employment and sustainable development around the world, particularly in developing countries, through a process of fundamental reform. The key ingredients of this process are substantial reductions in trade-distorting domestic support, the elimination of all forms of export subsidisation by an agreed date, and a further opening-up of agricultural markets. The European Community has already taken importantunilateral steps in that direction, most recently through the introduction of the Single Farm Payment scheme agreed under the 2003 Mid-term Review of the Common Agricultural Policy. This policy change coupled with the reforms that will result from the WTO negotiations will expose European farmers, like farmers in other countries, more prominently to market forces. The present report provides an important analysis of the opportunities and challenges ahead for the European farm community in adapting to the new policy environment. It also provides guidance for farmers, agro-industries and policy markets with respect to effective risk management strategies designed to facilitate smooth adjustment and a soft landing as these reforms are being implemented. Finally, the report highlights a few important areas which need to be further explored in the quest for instruments to facilitatea successful liberalisation of agricultural markets in Europe

Understanding the fundamentals of freight markets volatility

We analyse empirically the drivers of freight market volatility. We use several macroeconomic and shipping-related factors that are known to affect the supply and demand for shipping and examine their impact on the term structure of freight options implied volatilities (IV). We find that the level of IVs is affected by the level of the spot rate, the slope of the forward curve, as well as by both demand and supply factors, especially the former. We demonstrate that the relation between the volatility of futures prices and the slope of the forward curve is non-monotonic and convex, that is, it has a V-shape. In general, anticipation of economic growth and of a stronger freight market reduces IV whereas higher uncertainty and anticipation of excess shipping capacity may increase IV. Panel regressions as well as a series of robustness tests produce strong validation of the results

On reconciling macro and micro energy transport forecasts for strategic decision making in the tanker industry

We propose the use of hierarchical structures for forecasting freight earnings. Hierarchical time series approaches are applied in the dry-bulk and tanker markets to identify the most suitable strategy for forecasting freight rates. We argue that decision making for shipping practitioners should be based on forecasts of freight earnings at different hierarchical levels. In other words, different strategic shipping decisions such as operations management, choice of freight charter contract and type of investment should be matched with the appropriate level of forecasts of freight earnings that are aggregated at different macro-levels: operating route, vessel size and type of trade

Freight options: Price modelling and empirical analysis

This paper discusses an extension of the traditional lognormal representation for the risk neutral spot freight rate dynamics to a diffusion model overlaid with jumps of random magnitude and arrival. Then, we develop a valuation framework for options on the average spot freight rate, which are commonly traded in the freight derivatives market. By exploiting the computational efficiency of the proposed pricing scheme, we calibrate the jump diffusion model using market quotes of options on the trip-charter route average Baltic Capesize, Panamax and Supramax Indices. We show that the jump-extended setting yields important model improvements over the basic lognormal setting

Shipping Investor Sentiment and International Stock Return Predictability

Stock return predictability by investor sentiment has been subject to constant updating, but reaching a decisive conclusion seems rather challenging as academic research relies heavily on US data. We provide fresh evidence on stock return predictability in an international setting and show that shipping investor sentiment is a common leading indicator for financial markets. We establish out-of-sample predictability and demonstrate that investor sentiment is also economically significant in providing utility gains to a mean-variance investor. Finally, we find evidence that the predictive power of sentiment works best when negative forecasts are also taken into account

Risk management, price discovery and forecasting in the freight futures market

The success or failure of a futures contract is determined by its ability to provide benefits to economic agents, over and above the benefits they derive from the spot market. These benefits are price discovery and risk management through hedging. The extent to which different commodity and financial futures markets have served as efficient centres of price discovery and risk management has been the focus of considerable empirical research in the literature. The evidence however, on the BIFFEX market is very limited. This thesis therefore, by investigating these issues provides new evidence in the literature for a futures market with some unique characteristics such as the trading of a service and thin trading. Our empirical results are summarised as follows. First, the BIFFEX market performs its price discovery function efficiently since futures prices in the market contribute to the discovery ofnew information regarding both current and expected BFI prices. Second, futures prices fail to reduce market risk to the extent evidenced in other markets in the literature and, hence, the market does not perform its risk management function satisfactorily; this is thought to be the result of the heterogeneous composition of the underlying index. Sub-period analysis, corresponding to revisions in the composition of the underlying asset, indicates that the effectiveness of the BIFFEX contract as a centre for risk management and price discovery has strengthened over the recent years as a result of the more homogeneous composition of the index. This by itself indicates that the forthcoming elimination from the underlying index of the cargo routes for larger vessels, which will take place in November 1999, may have a beneficial impact on the market