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The Formation of FFA Rates in Dry Bulk Shipping: Spot Rates, Risk Premia and Heterogeneous Expectations

Nomikos, N. ORCID: 0000-0003-1621-2991 and Moutzouris, I. (2018). The Formation of FFA Rates in Dry Bulk Shipping: Spot Rates, Risk Premia and Heterogeneous Expectations. Journal of Futures Markets, doi: 10.1002/fut.21980

Abstract

This article examines the formation of forward rates in the dry bulk shipping industry. We illustrate that the bulk of basis volatility can be attributed to expectations about future physical market conditions rather than expectations about future risk premia. However, there exists significant predictability of risk premia by both price-based signals and economic variables. To explain this finding, we develop a dynamic asset pricing framework where, apart from having different objective functions, agents might also differ in the way they form expectations about future market conditions Accordingly, we argue that the average investor should hold “near-rational” but slightly contrarian beliefs.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Nomikos, N. and Moutzouris, I. (2018). The Formation of FFA Rates in Dry Bulk Shipping: Spot Rates, Risk Premia and Heterogeneous Expectations. Journal of Futures Markets, which has been published in final form at https://doi.org/10.1002/fut.21980. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions
Publisher Keywords: Asset Pricing ;Behavioural Finance; Shipping Industry; Biased Beliefs; Law of Small Numbers; Heterogeneous Agents; Contrarian Strategy
Subjects: H Social Sciences > HG Finance
V Naval Science > V Naval Science (General)
Departments: Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/20713
[img] Text - Accepted Version
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