Liquidity effects and FFA returns in the international shipping derivatives market |
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| Affiliation: | 1. Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, UK;2. ICMA Centre, Henley Business School, University of Reading, Whiteknights, Reading RG6 6BA, UK;3. School of Management, Faculty of Management and Law, University of Bradford, Emm Lane, Bradford BD9 4JL, UK;4. World Maritime University, Citadellsvägen 29, Malmö, Sweden;1. Faculty of Finance, Cass Business School, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom;2. School of Business and Management, Queen Mary, University of London, Mile End Road, London E1 4NS, United Kingdom;1. Cardiff Business School, Cardiff University, UK;2. Cass Business School, City, University of London, UK;3. School of Management, University of Bath, UK;1. School of Economics and Commerce, South China University of Technology, China;2. Research Center of Financial Engineering, South China University of Technology, China;3. Department of Economics, University of Texas at San Antonio, United States;4. Department of Logistics and Maritime Studies, The Hong Kong Polytechnic University, Hong Kong;1. College of Business Administration, Imam Abdulrahman Bin Faisal University, Saudi Arabia;2. Department of Civil & Environmental Engineering, Massachusetts Institute of Technology, Cambridge, MA, 02139, USA |
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| Abstract: | The study examines the impact of liquidity risk on freight derivatives returns. The Amihud liquidity ratio and bid–ask spreads are utilized to assess the existence of liquidity risk in the freight derivatives market. Other macroeconomic variables are used to control for market risk. Results indicate that liquidity risk is priced and both liquidity measures have a significant role in determining freight derivatives returns. Consistent with expectations, both liquidity measures are found to have positive and significant effects on the returns of freight derivatives. The results have important implications for modeling freight derivatives, and consequently, for trading and risk management purposes. |
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| Keywords: | Forward freight agreements Liquidity risk Bid–ask spreads Shipping Panel data |
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