Economic significance of market timing rules in the Forward Freight Agreement markets

Nomikos, N. & Doctor, K. (2013). Economic significance of market timing rules in the Forward Freight Agreement markets. Transportation Research Part E: Logistics and Transportation Review, 52, pp. 77-93. doi: 10.1016/j.tre.2012.11.009

[img]
Preview
PDF - Accepted Version
Download (1MB) | Preview

Abstract

Quantitative market timing strategies have been traditionally tested in liquid commodity and financial futures, often with mixed results with respect to their performance. We extend this methodology to a non-storable commodity, freight, where hitherto this analysis has not been carried out. The freight futures market is mature and increasingly liquid, making it a good case for diversification and trading opportunities. We carry out a comprehensive study of quantitative trading strategies in the FFA (Forward Freight Agreements) market on a wide variety of contracts and maturities with a number of trading rules. We find that in spite of robustness checks, trading rules do outperform the buy-and-hold benchmark in general. We also explore the possibility that illiquidity and a small sample size may impact the results of the tests and therefore offer an intuitive approach to mitigate their effects. A procedure that augments the Hansen (2005) SPA (Superior Predictive Ability) methodology and allows us to use it for smaller sample sizes with increased confidence is also proposed.

Item Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in Transportation Research Part E: Logistics and Transportation Review. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Transportation Research Part E: Logistics and Transportation Review, Volume 52, June 2013, Pages 77–93, http://dx.doi.org/10.1016/j.tre.2012.11.009
Uncontrolled Keywords: Data snooping, Forward Freight Agreements, Market timing, Multiple hypothesis testing, Reality check, SPA test, Trading strategies
Subjects: H Social Sciences > HB Economic Theory
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/7525

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics