Malaysian Journal of Mathematical Sciences, May 2018, Vol. 12, No. 2
Forecasting Spot Freight Rates using Vector Error Correction Model in the Dry Bulk Market
Taib, C. M. I. C. and Mohtar, Z. I.
Corresponding Email: imran@umt.edu.my
Received date: 29 July 2017
Accepted date: 5 March 2018
Abstract:
In this paper, we employ an applied econometric study concerning forecasting the spot freight rates based on Forward Freight Agreement (FFA) and Time Charter (TC) contracts. This study is important since the volatility of shipping freight rates is quite high and the future development of the rates is uncertain which may not easily predicted. Empirical analysis contains investigation of the relationship between the spot freight rates with FFA and TC. We also check for stationarity of those three types of data. The calibration of vector error correction model (VECM) is carried out using ordinary least square (OLS) method. Later, the VECM is used in forecasting the spot rates. Results show that the FFA forecasts better the spot compared to TC.
Keywords: Vector Error Correction Model, Dry Bulk Market, Spot Freight Rates, Forward Freight Agreement, Time Charter
