Risk analysis of the Aframax freight market and of its new building and second hand prices, 1976-2008 and 1984-2008

This paper explained the determining factors of the values of second hand and prices of newly-built ships in the Aframax size within their freight market. The stimulating idea was whether a second-hand price can be higher than the corresponding newly-built one and why. A multi-disciplinary literature review is prepared in this paper. The volatility – standard deviation – and thus risk – was attempted, using a computer routine, following Peters (1994). For risk, a departure from traditional analysis is carried out as our time series are not iid (identically and independently distributed) and exhibit long term dependence, following Mandelbrot. Alphas found equal to 1.30 to 1.60 using Hurst coefficients (H's) equal to 0.64-0.77 by rescaled range analysis. The time series exhibit a different speed than that of random walk (H = 0.50) and a Joseph effect is present, indicating trends and cycles in the maritime series. Short run horizon found is equal to about ten years (second hand market) and long run found is equal to about 15 years.

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