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Market efficiency in the bulk freight market revisited 

Authors: Roar Adland a; Siri Strandenes a
Affiliation:   a Norwegian School of Economics and Business Administration, Bergen, Norway
DOI: 10.1080/03088830600612773
Publication Frequency: 7 issues per year
Published in: journal Maritime Policy & Management, Volume 33, Issue 2 May 2006 , pages 107 - 117
Formats available: HTML (English) : PDF (English)
Previously published as: Maritime Studies and Management (0306-1957) until 1976
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Abstract

Given that the freight rate is the price of a transportation service that cannot be traded or stored; the traditional form of the efficient market hypothesis (EMH) does not apply to the freight rate price process. However, the notion of market efficiency still applies in the freight market. In particular, under the hypothesis that the market is semi-strong-form efficient, it should not be possible to make excess profit by taking chartering positions in the freight market based on public information such as past levels of the spot freight rate or the shape of the term structure of freight rates. This paper contributes to the literature by proposing an alternative test of market efficiency in the bulk freight market. We utilize technical analysis based on the history of spot freight rates and investigate the profitability of such chartering strategies for a tanker operator. The chartering decisions are based on identification of the peaks and troughs in the freight market cycles using kernel smoothing of the spot freight rate history. The empirical results suggest that a large tanker operator (e.g. a pool) could have achieved significant profits without investing in ships by trading on such information, although this does not hold in the most recent subset of the sample.
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