Title: The volatility transmission between crude oil market and tanker freight market

Authors: Lei Dai; Hao Hu; Yu Tao; Seungwon Lee

Addresses: State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China; Department of Transportation Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China ' State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China; Department of Transportation Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China ' State Key Laboratory of Ocean Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China; Department of Transportation Engineering, Shanghai Jiao Tong University, 800 Dongchuan Road, 200240, Shanghai, China ' Clarksons Research, Shanghai, China

Abstract: International crude oil and tanker shipping markets interrelate closely. Crude oil prices and tanker freight rates always fluctuate drastically, however the volatility transmission mechanism between the two markets have been ignored. The purpose of this study is to examine volatility transmission effects between the two markets by applying the BEKK-GARCH model on analysing Brent oil prices and Baltic Dirty Tanker Index. The index range was set from 18th January 2007 to 9th November 2015 covering the periods of financial crisis and oil price fall. Results show that volatility is mainly transmitted from crude oil market to tanker freight market from a long-term perspective, but not vice versa. Some bi-directional effects were found in tanker freight market that lagged variances and could affect the current variance in a counterpart market, regardless of the volatility transmission for some certain periods. The findings could help the practitioners better understand the market dynamics.

Keywords: crude oil price; tanker freight; volatility; BEKK-GARCH model.

DOI: 10.1504/IJSTL.2020.111122

International Journal of Shipping and Transport Logistics, 2020 Vol.12 No.6, pp.619 - 634

Received: 22 Oct 2018
Accepted: 08 Jul 2019
Published online: 10 Nov 2020 *

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