Exploring risk-return relations in dry bulk shipping

Abstract

This study investigates the risk-return relations in dry-bulk shipping freight, and to analyse how it was influenced by the 2008 financial tsunami. Empirical results show that the shipping freight's risk-return relation, measured by risk premium parameter β, varies by different types of ship. The risk-return relations of capesize freight have changed after the financial tsunami, from high-risk/high-return into high-risk/low-return. In other words, compared to the case of Standard & Poor's 500 (S&P 500), there have been significant declines in the freight risk premiums. Furthermore, the risk premium parameter β is not only affected by the financial tsunami, but also significantly affected by the previous parameter β and previous freight return. The results of this study can make shipping operators aware of the dynamics of risk-return relations among various ships, so as to secure the optimal asset allocation of ship investments.

A survey of shipping finance research: Setting the future research agenda

“…including both shipping and non-shipping lines of business, are not different from one. In a related study, Kuo et al (2016) investigate the freight risk-return relation in the dry bulk sub-sector measured by asset beta. They document that this relation varies depending on vessel sub-segment, and that it has shifted from high-risk/high-return to high-risk/low-return for Capesize vessels.…”