THE EFFECT OF FREIGHT RATES ON ASSET PRICE BUBBLES IN DIRTY TANKER MARKET
Abstract
Dirty tanker shipping is one of the most important parts of the international crude oil supply chain. So, it contains a large number of players and the market is very volatile. Therefore, making commercial decisions at the right time is very important both in terms of providing exceptional profits and holding on in the market. One of the market that this correct timing is most important is the second hand market, as the million-dollar fluctuations in the prices can be realized in a short time. The main determinant of the second-hand price is the freight levels in the market. Thus, it is very important to understand the interaction between the two variables. In this framework, in this study, it is aimed to determine the price bubbles in the second hand tanker prices and to determine the effect of the change in freight rates on the probability of price bubble formation. Generalized sup augmented Dickey-Fuller (GSADF) test is used for price bubble identification and logit regression model is used for probability calculation. Second hand tanker prices consist of VLCC, SUEZMAX and AFRAMAX tanker types, while the freight rates are based on the Baltic Dirty Tanker Index (BDTI). The data consist of 240 observations on a monthly basis covering the dates between August 1998 and July 2018. The results reveal that the increase in freight rates in the dirty tanker market by 1 unit (1000 points) increases the probability of price bubble formation by 80%, 70% and 55% respectively in 5 years old VLCC, SUEZMAX and AFRAMAX tanker prices. It is hoped that these results contribute to the existing maritime economics literature by approaching the subject from different perspective. In addition, it is considered that it is beneficial for the players in the market to take these results into consideration in their investment decisions in line with their targets.
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