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Full Length Research Paper
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An analysis
of the relationship between forward freight agreements and
steel price index: An application of the vector ARMA model
Ming-Tao Chou* and Bo-Ching Huang
Department of Aviation and Maritime Transportation
Management, Chang Jung Christian University, Republic of
China.
*Corresponding author. E-mail:
mtchou@gmail.com.
Accepted 11 May, 2010 |
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Abstract |
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The bulk shipping market, as a global business, depends on the
development of emerging industrial countries, the exploration of
new mining areas, the policies of countries importing raw
materials and the international economic situation. Due to
market participants being able to decide independently the
timing for entering or exiting the market, the type of vessel to
invest in, the locations of shipping operations, and trading
partners, this high level of independence and operation
elasticity makes it difficult for market participants to control
price volatility and trend. As such, market participants are
reluctantly facing greater market uncertainty and volatility.
Meanwhile, Forward Freight Agreements (FFAs) act as a very
reliable hedging instrument, which enables market participants
to hedge market risks by investing in FFAs. This research
employs a time-series analysis, VARMA (Vector Autoregressive
Moving-Average Model), as the methodology, using one year FFAs
and the global steel price index as variables to analyze the
coefficient between the two. This research is intended to
provide market participants with a new direction for entering or
exiting markets.
Key words:
Forward freight agreements, steel price index, VARMA. |
