What determines the differential between timecharter rates and FFAs?

Alizadeh-Masoodian, A. & Adland, R. (2017). What determines the differential between timecharter rates and FFAs?. Transportation Research Part E,

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Abstract

Physical time-charters (TC) and Forward Freight Agreements (FFAs) represent two hedging approaches that differ in terms of risks and physical access to transportation. We investigate the determinants of the time-varying TC-FFA freight rate differential in a linear regression framework. We find that TC rates and FFA prices are co-integrated but that TC rates are generally priced higher than FFAs, with the differential explained by the level and slope of the term structure as well as vessel specifications and contractual terms. We conclude that the differential can be explained by a time-varying risk premium and the presence of a convenience yield.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/18078

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  • What determines the differential between timecharter rates and FFAs? (deposited 25 Aug 2017 13:32) [Currently Displayed]

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