Research on the relationship between forward freight agreements and the fuel oil index

Chou Ming Tao
2013 African Journal of Business Management  
Bulk shipping is a globalised industry, and market prices are entirely dependent on the world's economic climate. The industries contractual arrangements are also rather flexible making it difficult for market participants to understand the trends and fluctuations of market prices and forcing market participants to face greater uncertainty and volatility. VARMA (1,3) is the most suitable model, because it demonstrates the existence of a stage one lag effect between Capesize FFAs and the global
more » ... FAs and the global oil index. This model also has three error correction factors. By using VARMA (1,3) formulas, it is possible to discover the mutual effects of the relationship between the two hedge components. The research result aims to provide market participants with guidance for entering and exiting bulk shipping markets. Oil and Forward Freight Agreements (FFAs) act as suitable hedging instruments in bulk shipping markets, allowing market participants to hedge their risks in spot markets. This research predominantly applies the vector autoregressive moving-average model (VARMA) and uses variables from one year FFAs and the global oil index to analyse the relationships between the two instruments. This research believes the
doi:10.5897/ajbm10.1075 fatcat:hfx6xd6alfgnxk42bmkpe6romu