Valuation mismatch and shipping q indicator for shipping asset management

ABSTRACT

This paper aims to develop an adaptation of the Tobin Q investment model for the shipping asset management in order to monitor valuation mismatch and bubble pricing of shipping assets. In this circumstance, the market prices of various shipping assets (e.g., Capesize or Panamax dry bulk carriers in different age profiles) are compared to the measured long-term asset value with second-hand ship prices. The mark-to-market prices of shipping assets are led by current market trends and freight rates, while the long-term asset value is estimated by using past data under certain assumptions (mean reversion, trend reversion). The discrepancy between market prices and the long-term nominal value of a shipping asset reflects any mispricing, which in turn sheds light on investment timing and market entry-exit decision.

KEYWORDS:

• Shipping asset management
• ship valuation
• Tobin Q theory
• investment

Disclosure statement

No potential conflict of interest was reported by the authors.

Data availability statement

The data that support the findings of this study are available from the corresponding author, [SCG], upon reasonable request.

Notes

1. Please see Craven and Islam (2005, 132) further explanation about transversality conditions.

2. The data of lightweight tone is collected for each vessel/age from various sources and their average is taken to calculate scrap value. For further application for application of Φ_Q, the exact LDT can be used to calculate the indicator.

3. 20 years average was partially applied since available data for 1-year time charter rate goes back to 1976.

4. For tanker vessels, the equilibrium level is taken as 0.90, since the indicator mostly do not exceed 1.00 level.