Volatility transmission in the dry bulk newbuilding and secondhand markets: an empirical research

Abstract

Dry bulk market is an important element of world trade. Newbuilding and secondhand vessel prices tend to fluctuate drastically, however the volatility mechanism between the two markets have been largely ignored. This paper is the first to investigate the volatility transmission effect between the two markets with the bivariate GARCH model. The empirical results revealed that volatility spillover was from newbuilding to secondhand market in capesize, panamax, and handymax sectors, while volatility transferred from secondhand to newbuilding market in handysize sector. Besides, some bi-directional effects were found in the dry bulk market that lagged variances and could affect the current variance in a counterpart market, regardless of the volatility transmission. The findings could help the investors to better understanding the market dynamics and risk management.

Keywords:

• Volatility
• Dry bulk market
• Vessel price
• GARCH