Maritime Policy & Management

ISSN: 0308-8839 (Print) 1464-5254 (Online) Journal homepage: www.tandfonline.com/journals/tmpm20

Price and volume dynamics in second-hand dry

bulk and tanker shipping markets

Theodore Syriopoulos & Efthimios Roumpis

To cite this article: Theodore Syriopoulos & Efthimios Roumpis (2006) Price and volume
dynamics in second-hand dry bulk and tanker shipping markets, Maritime Policy &
Management, 33:5, 497-518, DOI: 10.1080/03088830601020729

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MARIT. POL. MGMT., DECEMBER 2006
VOL. 33, NO. 5, 497–518

Price and volume dynamics in second-hand dry bulk

and tanker shipping markets

THEODORE SYRIOPOULOS* and EFTHIMIOS ROUMPIS

Department of Shipping, Trade and Transport, Business School,
University of the Aegean, Greece

The relationship between trading volume, prices and return volatility is

thoroughly investigated in different second-hand dry bulk and tanker market
segments. The objective is to gain fruitful insight on the sale and purchase market
dynamics, and the sensitivity of vessel price movements following the arrival of
new information signals in the shipping markets. Contemporaneous relationships
are identified between returns and volume, particularly in the markets of
handysize and panamax bulks as well as of handysize and aframax tankers.
Price changes are found to have an impact on trading volume indicating that
expectations to higher capital gains induce increases in trading activity. Volume
appears to have a negative impact on the volatility of price changes mainly in the
dry bulk market; this may be due to thin trading, limited transaction transparency
and absence of vessel price quotes. The empirical findings can contribute to a
better understanding of shipping markets’ microstructure and price volatility
dynamics by market participants. This, in turn, can be useful for investors who
construct their portfolios of real assets with a view to attain superior capital gains,
controlling for the underlying investment risk.

1. Introduction
The impact of trading volume (activity) on price changes is an important issue,
since trading volume can contribute useful information to assessing expected price
movements, thus affecting market volatility, asset pricing and investment decisions.
The topic has been well researched mainly in the financial markets, the underlying
assets being more frequently stocks, bonds or derivative contracts. Overall, the
empirical findings support a positive price–volume relationship, although results
have not always been consistent. Based on the available set of information,
stock prices reflect investors’ expectations on future performance. New information
flows in the market cause investors’ expectations to adapt, resulting to
corresponding price movements. The theoretical explanation of a positive relation-
ship between trading volume and price changes is related to the Mixture of
Distribution Hypothesis (MDH), advanced by Clark [1], Epps and Epps [2], Tauchen
and Pitts [3], Morgan [4] and Harris [5] and to the Sequential Information Flow
(SIF) supported by Copeland [6], Jennings and Barry [7], Jennings et al. [8] and
Morse [9], inter alia.
Despite extensive research on the price–volume relationship in the capital
markets, there has been no previous study investigating this relationship in a market

*To whom correspondence should be addressed. e-mail: mourat@hellasnet.gr

Maritime Policy & Management ISSN 0308–8839 print/ISSN 1464–5254 online ß 2006 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/03088830601020729
498 T. Syriopoulos and E. Roumpis

where real assets are traded, such as merchant ships. The only exception, to our
knowledge, is Alizadeh and Nomikos [10], who investigate the price–volume
relationship in the dry bulk shipping market. However, the risk profile is anticipated
to be different between the various shipping sectors and is associated with factors
such as freight rate fluctuations, vessel size class and operational flexibility. This
eventually affects asset values and return volatility in the shipping markets. It is then
important for investors to have a perception of market reaction and shipping return
volatility. Hence, investors can take advantage of opportunities to trade by adjusting
investment positions and asset allocation accordingly, on the basis of increasing
return and reducing investment risk. It is a key objective of this paper to contribute
some useful insight towards understanding the dynamics of the price–volume
relationship in the shipping markets, enriching but mainly expanding the limited
past empirical research [10]. As trading volume adjustments reflect information flows
available to the market participants, studying the joint dynamics of trading volume
and prices improves our understanding of shipping markets microstructure and
supports a more efficient asset allocation in terms of risk and return.
This study provides, for the first time, some innovative and useful empirical
findings in assessing the impact of sale and purchase trading activity (volume) on
second-hand vessel price fluctuations in the dry bulk and tanker markets. There are
two basic issues that this paper attempts to investigate. First, the information content
of second-hand sales and purchase volume is assessed in understanding vessel price
changes (returns) and predicting future price fluctuations of second-hand vessels.
Trading activity can reveal some information about the sentiment and future
direction and magnitude of ship price movements. Second, the effect of trading
activity on volatility dynamics of ship price changes is examined, as information
flows reflected in trading volume can contribute to declining market uncertainty
and risk. A comparative assessment of the relationship between sales volume and
price changes is undertaken in different shipping market segments. This interactive
framework contributes to a better understanding of the price–volume dynamics,
as trading activity can have different implications for vessel price volatility in
different shipping market segments (e.g. [11, 12]). Furthermore, the analysis is
extended across different vessel size classes, namely handysize, panamax and capesize
vessels, in the dry bulk market and handysize, aframax and suezmax and VLCC
(very large crude carriers) vessels, in the tanker market. These issues are of
importance to market practitioners, as their implications can affect investment
decisions, trading strategies and ‘asset play’ expected returns in different
shipping markets. The investigation of the price–volume relationship in the shipping
markets offers the opportunity to assess the application of theories such as the
MDH and SIF in markets where the underlying traded instruments are physical and
not financial assets. Compared to the financial markets, the shipping markets are
characterized by distinct features, such as thin trading, limited liquidity and low
transparency, since most transactions are privately held with the intermediation of
specialized shipping brokers.
The structure of the paper is as follows. Section 2 briefly reviews past empirical
literature on the price–volume relationship. Section 3 includes description of the data
and their statistical properties and section 4 presents the empirical methodology
employed in the shipping markets. Section 5 summarizes the empirical findings and
section 6 concludes.
 Second-hand dry bulk and tanker shipping markets 499

2. Literature review
The theoretical framework for a positive trading volume–price relationship is set by
the Mixture of Distribution Hypothesis (MDH) of Clark [1] and the Sequential
Information Flow (SIF) of Copeland [6]. According to the MDH, both price changes
and volume follow a joint probability distribution. A latent common factor,
representing the rate of information arrival to the market, affects volume and price
simultaneously and causes a contemporaneous movement. Epps and Epps [2]
provide support of the MDH and suggest that price changes follow a mixture of
distributions with transaction volume being the mixing variable. Trading volume
reflects disagreement as traders revise their reservation prices, based on the arrival of
new information into the market; the greater the degree of traders’ disagreement,
the larger the level of trading volume. The MDH postulates that the distribution of
price changes is kurtotic rather than normal because price changes are sampled from
a set of distributions which is characterized by different variances.
The SIF assumes that new information is disseminated in the market sequentially
and randomly. Adjustments of portfolio positions by informed traders result in
demand and supply shifts and a series of transitory equilibria. Equilibrium is
restored once the information is fully absorbed by all traders. Consequently, the
sequential arrival of new information to the market generates both trading volume
and price movements that increase during periods of information shocks. According
to both the MDH and the SIF theories, information flows are managed in the
market and the impact which new information exercises on price movements and
investors’ behaviour is interpreted by transactions of selling or purchasing the
underlying asset. The MDH assumes that information dissemination is symmetrical
and all trades view changes in demand and supply simultaneously; as a result,
equilibrium is restored immediately. The SIF, however, assumes asymmetric
information dissemination and gradual equilibrium restoration. Jennings et al. [8]
derive the SIF model and suggest a positive bi-directional causal relationship
between stock prices and trading volume. McMillan and Speight [13] argue that the
SIF model supports a dynamic relationship with past volume providing information
on current returns and past returns predicting current volume.
The majority of past empirical studies investigate the relationship between
trading volume and stock returns in the stock markets. Earlier research examines the
contemporaneous relationship between volume and absolute returns and more recent
studies focus on causal implications and volatility dynamics. Karpoff [14]
summarizes the importance of linear and nonlinear effects between volume and
returns per se and concludes that most past studies indicate a positive contem-
poraneous relationship (e.g. [15]). A number of studies examine causal dynamics
between volume and returns per se. Hiemstra and Jones [16] investigate the dynamic
relationship between Dow Jones Industrial Average index returns and trading
volume employing nonlinear causality tests and conclude bilateral nonlinear causal
feedback between returns and trading volume. Similar conclusions are reached by
Silvapulle and Choi [17] who investigate for linear and nonlinear causality on the
Korean stock market, whereas Saatcioglu and Starks [18] find that volume leads
returns in Latin American emerging markets. Gallant et al. [19] focus on New York
Stock Exchange (NYSE) trading volume and S&P 500 stock index returns per se,
employ nonlinear impulse response functions and find evidence for returns leading
volume. Campbell et al. [20] assume a market of liquidity traders and market makers
and find that negative return autocovariances are anticipated following days with
500 T. Syriopoulos and E. Roumpis

large trading volume. Wang [21] employs a model with information asymmetry and
finds that volume can provide information about expected future returns. Lee and
Rui [22] examine the contemporaneous and causal relationships between trading
volume, stock returns and return volatility in China’s four stock exchanges and
across these markets and find weak predictive power. In a recent study, Lee and Rui
[23] investigate the dynamic relationship between stock prices and trading volume for
New York, Tokyo and London stock exchanges and find limited information
feedback of volume to future price movements. Darrat et al. [24] use intraday
data for Dow Jones Industrial Average stocks and report evidence of a significant
lead–lag relationship but not of a contemporaneous correlation. Gervais and
Mingelgrin [25] conclude that periods of high trading volume tend to be followed by
negative excess returns in NYSE stocks, suggesting a positive returns–volume
relationship and volume leading returns. Blume et al. [26] examine the impact of the
information content of volume on market behaviour and find that past volume and
prices can be useful to predict price movements, when prices are noisy and market
participants cannot obtain the full information signal from prices alone; thus,
market participants condition their expectations about price movements on volume
as well as on prices.
More recently, a body of empirical research employs stochastic conditional
autoregressive heteroskedasticity (ARCH) models in order to investigate volume–
price volatility dynamics. In most of the cases, robust (contemporaneous and
dynamic) price volatility–trading volume relationships are detected, as, for instance,
in Brock and LeBaron [27], Duffee [28], Andersen [29], Brailsford [30], Gallo and
Pacini [31] and Omran and McKenzie [32]. Tauchen and Pitts [3] examine jointly
the volatility of price changes and volume on speculative markets and trading
activity is found to reduce mispricing and market volatility. Lamoureux and
Lastrapes [33] study the volume–volatility relationship for a number of US stocks
using contemporaneous trading volume as an explanatory factor in the variance
equation and find that the inclusion of volume in the variance model results to
elimination of volatility persistence [34]. Other studies on stock markets also indicate
that volume has a positive effect on conditional volatility [35, 36]. However, Chen
et al. [37], contrary to Lamoureux and Lastrapes [33], find that the persistence in
volatility is not eliminated when lagged or contemporaneous trading volume is
incorporated in the ARCH model.
The price–volume relationship has also been studied in the financial futures
markets. Grammatikos and Saunders [38], for instance, in a study of currency futures
markets conclude support of the MDH. Gwilym et al. [39] find evidence of
bi-directional causal effects between intraday prices of FTSE-100 futures and volume
in London International Financial Futures and Options Exchange (LIFFE). Najand
and Yung [40] study Treasury bond futures and find that lagged volume explains
volatility better than contemporaneous trading volume; Montalvo [41] produces
similar conclusions. Fujihara and Mougoue [42] conclude bi-directional nonlinear
causality between volume and returns per se in the US future markets, whereas Bhar
and Hamori [43] examine the pattern of information flow between price changes and
trading volume in gold futures contracts and find evidence of strong contempora-
neous causality that is supportive of the MDH. Foster [44] and Bhar and Hamori
[45] study the causal informational dependencies between crude oil futures return
and trading volume, and find only causality at higher-order lags running from return
 Second-hand dry bulk and tanker shipping markets 501

to volume in the mean as well as in conditional variance; their results indicate mild
support of the noise traders’ hypothesis in these markets.
To sum up, a body of past empirical research has focused on the price and volume
relationship mainly in the stock markets, and has concluded a positive relationship in
most cases. However, the empirical findings have sometimes produced contradictory
and ambiguous results. In any case, this study attempts a rigorous investigation of the
price–volume relationship in a real asset market, the shipping market, and in
particular the dry bulk and tanker market segments. Surprisingly, relevant research in
the field is virtually absent. An exception is a similar study by Alizadeh and Nomikos
[10], which, however, focuses only on the dry bulk sector. The sale and purchase
market for second-hand dry bulk vessels is analysed and second-hand prices for five-
year-old dry bulk carriers in different vessel sizes (handysize, panamax, capesize and
sectoral aggregate) are employed. It is concluded that price changes are useful in
predicting trading volume, which suggests that higher capital gains encourage more
transactions in the market. Contrary to the empirical findings for capital markets, the
evidence supports that volume has a negative impact on the volatility of price changes,
as increases in trading activity lead to reduction in market volatility, which in turn
may be related to the unique characteristics of the shipping market.

3. Data description and statistics

The main objective of this paper focuses on the comparative analysis of the dynamic
price–volume relationship in major shipping market segments, the dry bulk and
tanker markets. The data set comprises of monthly second-hand prices for five-
year-old vessels, in different vessel size classes: namely, handysize, panamax and
capesize, in the dry bulk segment [46] and handysize, aframax, suezmax and VLCC,
in the tanker segment [47]. The study period expands from September 1991 to
November 2004. Prices are quoted in million dollars and indicate the average value
of vessels sold in each category. Trading volume represents monthly number of
transactions in the sale and purchase market in each vessel size class and market
segment [48].
3.1. Price statistics
A number of descriptive statistics and tests for vessel price changes and trading
volume are discussed for the dry bulk and tanker markets (tables 1 and 2,
respectively). In the dry bulk market segment (panel A, table 1), mean price returns
are found to be negative in all three vessel size classes, whereas volatility (standard
deviation) increases with vessel size [49]. Similar conclusions hold for the tanker
market, with the exception of the mean suezmax return which is found to be positive
(panel A, table 2). All of the series in both market segments are negatively skewed
(long left tail) at the 10% significance level and show excess kurtosis, whereas
significant values of the Jarque–Bera test support deviation from normality. With the
exception of the capesize class, evidence of serial correlation in price returns is shown
in the Ljung–Box statistic in both market segments. Inspection of the ship price and
return plots in the different market segments indicates that volatility displays the
clustering phenomenon associated with GARCH processes (figures 1 and 2).

3.2. Volume statistics

Descriptive statistics for monthly second-hand sales volume of different vessel
classes in the dry bulk and tanker markets are summarized in (panel B) tables 1 and 2,
502 T. Syriopoulos and E. Roumpis

Table 1. Descriptive statistics of price–volume: dry bulk market.

Handysize Panamax Capesize

Panel A: Price returns

Mean
0.0021
0.0040
0.0046
Std deviation 0.0350 0.0367 0.0383
Skewness
0.5866
0.1215
0.3612
Kurtosis 6.1211 4.5509 10.2662
Normality 56.5133 12.5270 271.0400
{0.000} {0.002} {0.000}
Autocorrelation 27.3890 26.8220 6.5966
{0.007} {0.008} {0.008}
Unit root test
Level
1.186
1.404
1.754
1st differences
8.916
8.890
10.703
Panel B: Sales volume
Mean 12.0000 5.3414 2.0406
Std deviation 5.7145 3.5409 1.9769
Skewness 0.3757 0.7875 2.1420
Kurtosis 2.9406 3.0523 12.4010
Normality 2.9126 12.7278 547.0620
{0.233} {0.001} {0.000}
Autocorrelation 44.5490 64.1670 14.4070
{0.000} {0.000} {0.275}
Unit root test
Level
8.621
7.868
10.789
1st differences – – –

Notes: Price level in logs. Mean return in one-period difference percentage.

Figures in {} are exact probability values.
Normality is the Jarque–Bera test, distributed as
2ð2Þ .
Autocorrelation is the Ljung–Box Q-statistic on the first 12 lags of the sample autocorrelation function
of the series, distributed as
2ð12Þ , with a 5% critical value of 21.03.
Unit root test is the Phillips–Perron (PP) non-parametric test with a truncation lag of 4, with a 5% critical
value of
2.88.

respectively. The average number of monthly vessel transactions over the sample
period ranges from 2.04 (capesize) to 12.00 (handysize) vessels in the dry bulk sector
and from 1.95 (VLCC) to 5.27 (handysize) vessels in the tanker sector. Hence, the
average trading volume decreases as the vessel size increases in both market sectors
which is reasonable, as the number of vessels in the smaller size classes are multiples of
those in the larger classes in both market segments. It is also related to increasing costs
of investment and maintenance as well as to constraints in operational flexibility,
rendering the larger asset (vessel) classes less liquid. The frequency distribution of
volume figures exhibits positive skewness and low kurtosis, excluding capesize
volume. Unit root tests in levels, using the Phillips–Perron [50], nonparametric test
indicate that price returns and trading volume are stationary series in all different
vessel classes in the dry bulk and market segments [51].

4. Empirical methodology
A variety of recently advanced econometric techniques is employed in order to gain
an understanding of the dynamic relationship between prices, return volatility and
trading volume in different second-hand shipping market segments.
 Second-hand dry bulk and tanker shipping markets 503

Table 2. Descriptive statistics of price–volume: tanker market.

Handysize Aframax Suezmax VLCC

Panel A: Price returns

Mean
0.0024
0.0003 0.0003
0.0011
Std deviation 0.0357 0.0444 0.0252 0.0280
Skewness
2.3306
1.0321
0.1059
0.0483
Kurtosis 17.0854 8.3976 4.8963 5.1251
Normality 118.9630 169.7611 18.5078 23.0040
{0.000} {0.000} {0.000} {0.000}
Autocorrelation 20.9300 14.193 35.1710 22.4740
{0.051} {0.289} {0.000} {0.033}
Unit root test
Level
2.609
2.263
1.542
2.020
1st differences
9.349
8.877
8.210
9.174
Panel B: Sales volume
Mean 5.2764 3.0732 2.9105 1.9593
Std deviation 3.0843 2.4997 2.8051 1.7480
Skewness 0.8799 1.1449 1.7496 1.0145
Kurtosis 4.8324 6.3021 7.0388 3.4271
Normality 33.0802 98.9749 146.3570 22.0369
{0.000} {0.000} {0.000} {0.000}
Autocorrelation 16.2890 29.478 81.1040 16.0140
{0.178} {0.003} {0.000} {0.191}
Unit root test
Level
9.303
10.080
8.807
8.311
1st differences – – – –

Notes: Price level in logs. Mean return in one-period difference percentage.

Figures in {} are exact probability values.
Normality is the Jarque–Bera test, distributed as
2ð2Þ .
Autocorrelation is the Ljung–Box Q-statistic on the first 12 lags of the sample autocorrelation function
of the series, distributed as
2ð12Þ , with a 5% critical value of 21.03.
Unit root test is the Phillips–Perron (PP) non-parametric test with a truncation lag of 4, with a 5% critical
value of
2.88.

4.1. Contemporaneous price–volume relationship and causality

The contemporaneous relationship between price changes and trading volume is
initially assessed for the dry bulk and tanker vessel classes. Linear models of price
changes on volume and vice versa are specified in the following form:

Pt ¼ 1 þ 1 Vt þ "t ð1Þ

Vt ¼2 þ2
Pt þ"t ð2Þ

where
Pt denotes the logarithmic price changes (log (Pt/Pt
1)) and Vt is the trading
volume. The models are estimated for different vessel size classes, namely handysize,
panamax and capesize, in the dry bulk market and handysize, aframax, suezmax
and VLCC, in the tanker market. The statistical significance of the slope
coefficient i(i ¼ 1, 2) indicates whether there is any contemporaneous relationship
between price changes and trading volume in the shipping market segments.
The concept of ‘Granger causality’ [52] is tested in order to identify any causal
relationship between price changes and trading volume in the shipping markets.
504 T. Syriopoulos and E. Roumpis
Price level - sales volume: Handysize dry bulk market Price returns in handysize dry bulk market
35,00 25,00 20,00%

30,00 15,00%
20,00
25,00
10,00%
15,00
Volume

20,00

$ mln
15,00 5,00%

(%)
10,00
10,00 0,00%
5,00
5,00
–5,00%
0,00 0,00
–10,00%
SEP 1991
JUN 1992
MAR 1993
DEC 1993
SEP 1994
JUN 1995
MAR 1996
DEC 1996
SEP 1997
JUN 1998
MAR 1999
DEC 1999
SEP 2000
JUN 2001
MAR 2002
DEC 2002
SEP 2003
JUN 2004
–15,00%

OCT 1991

JUL 1992
APR 1993

JAN 1994

OCT 1994
JUL 1995

APR 1996

JAN 1997
OCT 1997

JUL 1998

APR 1999
JAN 2000

OCT 2000

JUL 2001
APR 2002

JAN 2003

OCT 2003
JUL 2004
Price returns in Panamax dry bulk market
Price level - sales volume: Panamax dry bulk market 40,00%
25,00 45,00
30,00%
40,00
20,00 35,00
20,00%
30,00
15,00
Volume

25,00 10,00%

$ mln

(%)
20,00
10,00 0,00%
15,00
10,00 -10,00%
5,00
5,00
-20,00%
0,00 0,00
SEP 1991
JUL 1992
MAY 1993
MAR 1994
JAN 1995
NOV 1995
SEP 1996
JUL 1997
MAY 1998
MAR 1999
JAN 2000
NOV 2000
SEP 2001
JUL 2002
MAY 2003
MAR 2004

-30,00%
OCT 1991
JUN 1992
FEB 1993
OCT 1993
JUN 1994
FEB 1995
OCT 1995
JUN 1996
FEB 1997
OCT 1997
JUN 1998
FEB 1999
OCT 1999
JUN 2000
FEB 2001
OCT 2001
JUN 2002
FEB 2003
OCT 2003
JUN 2004
Price level - sales volume: Capesize dry bulk market Price returns in capesize dry bulk market
16,00 60,00 40,00%

14,00 30,00%
50,00
12,00
20,00%
40,00
10,00
Volume

10,00%
$ mln

8,00 30,00
(%)

0,00%
6,00
20,00
4,00 –10,00%
10,00
2,00
–20,00%

0,00 0,00
–30,00%
SEP 1991
JUN 1992
MAR 1993
DEC 1993
SEP 1994
JUN 1995
MAR 1996
DEC 1996
SEP 1997
JUN 1998
MAR 1999
DEC 1999
SEP 2000
JUN 2001
MAR 2002
DEC 2002
SEP 2003
JUN 2004

OCT 1991
JUL 1992
APR 1993
JAN 1994
OCT 1994
JUL 1995
APR 1996
JAN 1997
OCT 1997
JUL 1998
APR 1999
JAN 2000
OCT 2000
JUL 2001
APR 2002
JAN 2003
OCT 2003
JUL 2004

Figure 1. Prices–trading volume and returns: dry bulk market.

A stationary variable, xt, is said to ‘Granger cause’ another stationary variable, yt, if
the current value of yt can be predicted by past values of xt. A bi-directional
(feedback) relationship is accepted in case both xt and yt ‘Granger cause’ each other.
The following Vector Autoregressive (VAR) model is employed in order to test for
causality and lead–lag behaviour between price changes and trading volume,
assuming stationarity for both variables [53]:
X
m X
m

Pt ¼1,0 þ a1,i
pt
i þ 1,i Vt
i þ "1,t ð3Þ
i¼1 i¼1

X
m X
m
Vt ¼2,0 þ a2,i
pt
i þ 2,i Vt
i þ "2,t ð4Þ
i¼1 i¼1
 Volume
Volume Volume
Volume

0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
18,00
20,00
0,00
5,00
10,00
15,00
20,00
25,00

0,00
2,00
4,00
6,00
8,00
10,00
12,00
14,00
16,00
SEP 1991 SEP 1991
SEP 1991 SEP 1991
JUN 1992 JUN 1992
JUN 1992 JUN 1992
MAR 1993 MAR 1993 MAR 1993
DEC 1993 MAR 1993
DEC 1993 DEC 1993
SEP 1994 DEC 1993
SEP 1994 SEP 1994
JUN 1995 SEP 1994
JUN 1995 JUN 1995
MAR 1996 JUN 1995
MAR 1996 MAR 1996
DEC 1996 MAR 1996
DEC 1996 DEC 1996
DEC 1996
SEP 1997 SEP 1997 SEP 1997
SEP 1997

Figure 2.
JUN 1998 JUN 1998 JUN 1998
JUN 1998
MAR 1999 MAR 1999 MAR 1999
MAR 1999
DEC 1999 DEC 1999 DEC 1999
DEC 1999
SEP 2000 SEP 2000 SEP 2000
SEP 2000
JUN 2001 JUN 2001 JUN 2001
JUN 2001
MAR 2002 MAR 2002 MAR 2002
MAR 2002 DEC 2002
DEC 2002 DEC 2002

Price level - sales volume: VLCC tanker market

Price level - sales volume: Suezmax tanker market
DEC 2002 SEP 2003
SEP 2003 SEP 2003
Price level - sales volume: Aframax tanker market
Price level - sales volume: Handysize tanker market

SEP 2003 JUN 2004

JUN 2004 JUN 2004
JUN 2004
0,00
5,00

0,00
10,00
15,00
20,00
25,00
30,00
35,00

0,00

20,00
40,00
60,00
80,00
0,00

10,00
20,00
30,00
40,00
50,00
60,00
70,00
80,00

100,00
120,00
10,00
20,00
30,00
40,00
50,00
60,00
70,00

$ mln
$ mln $ mln $ mln

(%) (%) (%)

(%)
–30.00%
–20.00%
–10.00%
0.00%
10.00%
20.00%
30.00%
40.00%

–10,00%
–50,00%
0,00%
5,00%
10,00%
15,00%

–10,00%
–50,00%
0,00%
5,00%
10,00%
15,00%
–25,00%
–20,00%
–15,00%
–10,00%
–5,00%
0,00%
5,00%
10,00%
15,00%
20,00%

OCT 1991 OCT 1991 OCT 1991

JUN 1992 OCT 1991 JUN 1992
JUL 1992
FEB 1993 JUL 1992 FEB 1993
APR 1993
OCT 1993 APR 1993 OCT 1993
JAN 1994
JUN 1994 JAN 1994 JUN 1994
OCT 1994
FEB 1995 OCT 1994 FEB 1995
JUL 1995
OCT 1995 JUL 1995 OCT 1995
APR 1996
JUN 1996 APR 1996 JUN 1996
JAN 1997
FEB 1997 JAN 1997 FEB 1997
OCT 1997 OCT 1997 OCT 1997
OCT 1997
Second-hand dry bulk and tanker shipping markets

JUL 1998 JUN 1998 JUN 1998

JUL 1998
APR 1999 FEB 1999 FEB 1999

Prices–trading volume and returns: tanker market.

APR 1999
JAN 2000 OCT 1999 OCT 1999
JAN 2000
OCT 2000 JUN 2000 JUN 2000
OCT 2000
JUL 2001 FEB 2001 FEB 2001

Price returns in VLCC tanker market

JUL 2001
Price returns in Suezmax tanker market

OCT 2001 OCT 2001

Price returns in Aframax tanker market

APR 2002
Price returns in handysize tanker market

APR 2002
JAN 2003 JUN 2002 JUN 2002
FEB 2003 JAN 2003 FEB 2003
OCT 2003
OCT 2003 OCT 2003 OCT 2003
JUL 2004
JUN 2004 JUL 2004 JUN 2004
505
506 T. Syriopoulos and E. Roumpis

4.2. Returns volatility–volume dynamics

The impact of trading volume on the reaction and persistence of shipping price
volatility is studied using the class of the generalized autoregressive conditional
heteroskedasticity (GARCH) models. These models have shown statistically
satisfactory properties in depicting price variability, particularly in the capital
markets [54]. As preliminary normality tests have shown that the error distribution
of price returns does not exhibit a constant variance, a GARCH-type model is
appropriate, since it encompasses an autocorrelation correction and is robust to
underlying non-normality. GARCH models incorporate heteroskedasticity in a
sensible way and can be extended to include other effects on conditional variance.
Thus, GARCH models can offer considerable flexibility in robust modelling of
shipping price returns (changes). Shipping return series can be viewed as a stochastic
process conditional on the information flow, with a changing second-order moment
reflecting the intensity of information arrivals. Trading volume is used as a proxy
variable to the unobservable information flows into the market and systematic
variations in trading volume are assumed to be caused by the arrival of new
information.
To test whether a relationship between returns and trading volume remains in
the different shipping market segments after controlling for non-normality of error
distribution, an exponential GARCH (EGARCH) model [55] is used to represent
conditional variance of shipping price returns. As is well documented in the empirical
literature (e.g. [54, 56]), the EGARCH model has some distinct advantages over the
symmetric GARCH models [57]. The logarithmic form of the model ensures that the
estimated conditional variance is strictly positive, thus the non-negativity constraints
used in the symmetric GARCH form are not necessary. The following EGARCH-X
model is specified to represent conditional volatility of second-hand ship price
returns, ht, taking into account the impact of trading volume, Vt
1, that enters the
variance model as a lagged exogenous variable:
X
m

Pt ¼ 0 þ ai
pt
i þ "t "t  Nð0, t2 Þ
i¼1
ht ¼ exp½! þ g1,t þ  logðht
1 Þ þ g2,t þ Vt
1  ð5Þ
 
j"t
1 j pffiffiffiffiffiffiffiffi "t
1
g1,t ¼ pffiffiffiffiffiffiffiffiffi
2= , g2,t ¼ pffiffiffiffiffiffiffiffiffi
ht
1 ht
1
where !, , ,  and  are constant parameters. The coefficients  and  measure the
‘reaction’ and ‘persistence’ of volatility, respectively. The coefficient  measures the
extent to which volatility shocks today feed through into next period’s volatility.
A large  coefficient means that volatility reacts quite intensively to market
movements; a large  coefficient indicates that volatility is persistent and shocks to
conditional variance take a long time to die out. Thus, if  is relatively high and  is
relatively low then volatility tends to be more ‘spiky’ [56]. The ( þ ) term measures
the rate at which this combined effect dies out over time. To better understand the
mechanics of the conditional variance model, its broad interpretation relates to an
agent that predicts this period’s variance by forming a weighted average of a
long-term average (the constant term), the forecasted variance from last period
(the GARCH term) and information about volatility observed in the previous period
(the ARCH term). If the asset return was unexpectedly large in either the upward
 Second-hand dry bulk and tanker shipping markets 507

or the downward direction, then the agent will increase the estimate of the variance
for the next period.
The impact of asymmetric (leverage) effects is depicted by  coefficient;  typically
enters the model with a negative sign and indicates whether a negative shock (‘bad’
news, "it < 0) generates more volatility than a positive shock (‘good’ news) of the
same magnitude. The importance of asymmetric effects on the conditional variance
structure has been well documented in the relevant literature [56]. The impact of
‘good’ or ‘bad’ news on volatility has been related to the ‘leverage’ effect [58, 59].
More specifically, the impact of ‘bad’ news results to asset price decreases, which,
in turn, decreases the equity value of the firm and, thus, increase the debt-to-equity
ratio. This makes the firm riskier, causing an increase in future expected variance of
returns. Asymmetry has also important implications for ‘betas’, that is the
covariance between the return on an asset and the return on the market portfolio
adjusted by the variance of the market return [60]. Finally,  coefficient measures the
impact of (lagged) trading volume on vessel price volatility in different shipping
market segments. In case  > 0 and is statistically significant, a positive relationship
between price volatility and trading volume is indicated.

5. Empirical results
5.1. Contemporaneous price–volume relationship
The contemporaneous relationship between price changes and trading volume is
analysed for different vessel classes and market segments using the model of
equations (1) and (2). The empirical findings are summarized in tables 3 and 4,
respectively. In the dry bulk market (table 3), the slope coefficient, 1, shows a
significant positive contemporaneous price change–trading volume relationship in all
but the capesize class and supports consistency with the MDH framework. In the
tanker market (table 4), the slope coefficient, 2, also supports a positive price
change–volume relationship in handysize, aframax and VLCC vessels but is found to
be negative and statistically insignificant for the suezmax class. The estimated
correlation coefficients (panel C) show a positive price change–volume relationship
mainly in panamax (dry bulk market) as well as in handysize and aframax (tanker
market) classes. Overall, a positive price return and sales volume relationship
appears to be predominant in both ship market segments under study. This outcome
is partly in line with past research [10] and may be related to the lengthy sale and
purchase process of merchant vessels. As the buyer has an opportunity to withdraw
the offer in case market prices fall sharply, exercise of this option may eventually
result to declining trading volumes. This conclusion is supported by similar findings
in the capital markets (e.g. [14]).

5.2. Price–volume Granger causality

The direction and impact of any (Granger) causal flows and lead–lag effects between
price return and trading volume in the shipping markets can be investigated by
performing Granger causality tests. As both variables are found to be stationary, the
VAR model of equations (3) and (4) is estimated for each shipping market segment
(tables 5 and 6). The lag length (m ¼ 2) is chosen on the basis of LR tests and the
Akaike information criterion. Residual diagnostics indicate that there is no serial
correlation or ARCH effects remaining in the estimated models.
508 T. Syriopoulos and E. Roumpis

Table 3. Contemporaneous price–volume relationship: dry bulk market.

Handysize Panamax Capesize

Panel A: Price return on trading volume

1
0.0170
0.0220
0.0042
(0.0073) (0.0057) (0.0050)
[0.0207] [0.0002] [0.0402]
1 0.0013 0.0033
0.0002
(0.0005) (0.0009) (0.0018)
[0.0242] [0.0004] [0.0926]
Panel B: Trading volume on price return
2 12.0276 5.5059 2.0226
(0.5099) (0.3080) (0.1809)
[0.0000] [0.0000] [0.0000]
2 33.3070 30.4277
0.4407
(14.5909) (8.3793) (4.7146)
[0.0242] [0.0004] [0.0926]
Panel C: Temporal correlation of price return–trading volume
0.2040 0.3147
0.0085

Notes: Figures () and [] are standard errors and exact probability values, respectively.

Table 4. Contemporaneous price–volume relationship: tanker market.

Handysize Aframax Suezmax VLCC

Panel A: Price return on trading volume

1
0.0123
0.0096 0.0004
0.0029
(0.0063) (0.0069) (0.0033) (0.0038)
[0.0548] [0.1647] [0.9019] [0.4371]
1 0.0019 0.0030
0.00006 0.0009
(0.0010) (0.0015) (0.0008) (0.0015)
[0.0733] [0.0510] [0.0933] [0.5119]
Panel B: Trading volume on price return
2 5.3045 3.0926 2.9182 1.9714
(0.2784) (0.2244) (0.2560) (0.1592)
[0.0000] [0.0000] [0.0000] [0.0000]
2 14.1056 9.6389
0.8586 3.7466
(7.8078) (3.8382) (10.2151) (5.696)
[0.0733] [0.0134] [0.0933] [0.5119]
Panel C: Temporal correlation of price return–trading volume
0.1627 0.1710
0.0077 0.0599

Notes: Figures () and [] are standard errors and exact probability values, respectively.

The empirical findings from Granger causality tests indicate that, despite positive
contemporaneous correlation, volume does not exert any significant causal effect on
past or current price returns in any second-hand vessel class, neither in the dry bulk
nor in the tanker market segment. Past returns, however, are found to lead current
trading volume levels and an increase in returns is anticipated to have a positive
impact on trading volume in the market for second-hand ships, especially in the
 Second-hand dry bulk and tanker shipping markets 509

Table 5. Lead–lag relationship between price–volume: dry bulk market.

Handysize Panamax Capesize

Pt Vt
Pt Vt
Pt Vt

i,0 (i ¼ 1,2)
0.012 8.849***
0.013 3.310***
0.001 2.027**

(0.009) (1.142) (0.007) (0.712) (0.006) (0.220)
ai,1 (i ¼ 1,2) 0.190** 32.753** 0.157 4.407 0.019*
0.489
(0.089) (12.457) (0.079) (7.425) (0.099) (2.812)
ai,2 (i ¼ 1,2) 0.053 27.252*
0.022 19.757** 0.006* 8.470*
(0.061) (12.663) (0.122) (8.852) (0.054) (4.274)
i,1 (i ¼ 1,2)
0.00006 0.124 0.002* 0.231** 0.002 0.033
(0.001) (0.077) (0.001) (0.099) (0.002) (0.075)
i,2 (i ¼ 1,2) 0.001 0.140
0.001 0.176*
0.001
0.025
(0.001) (0.090) (0.001) (0.102) (0.001) (0.068)
Q(12) 10.440 11.790 12.180 10.810 8.380 12.970
{0.577} {0.463} {0.431} {0.545} {0.754} {0.371}
Q2ð12Þ 4.860 11.870 7.090 8.830 4.250 0.760
{0.962} {0.456} {0.851} {0.717} {0.978} {1.000}
Granger causality tests

Pt causes Vt 11.234 8.383 3.930
{0.004} {0.015} {0.140}
Vt causes
Pt 2.849 4.522 1.784
{0.240} {0.104} {0.410}

Notes: Figures in (), [] and {} are standard errors, t-statistics and exact probability values.
*, ** and *** denote significance at the 10%, 5% and 1% levels, respectively.
The lag length is chosen on the basis of the LR tests and the Akaike information criterion.
The standard errors are corrected for heteroskedasticity using the Newey–West method [67].
Q(12) and Q2ð12Þ are the Ljung–Box Q-statistics on the first 12 lags of the sample autocorrelation function of
standardized residuals and squared standardized residuals, distributed as
2ð12Þ , with a 5% critical value
of 21.03.
Granger causality tests are Wald statistics distributed as
2ðmÞ , where m is the number of the restricted
parameters.

handysize and panamax (dry bulk market) and the handysize and aframax (tanker
market) classes. The unilateral linear causality from returns to trading volume is
consistent with the MDH framework and the conclusions of Hiemstra and
Jones [16]. In the context of second-hand shipping markets, this outcome may
explain the increased trading volumes seen during ‘asset play’ phases of the market,
induced by higher expected capital gains [10] and is consistent with recent findings in
the capital markets (e.g. [17, 23, 37]).

5.3. Return volatility–volume dynamics

The impact of trading volume on sale and purchase return volatility in the dry bulk
and tanker markets is investigated with the EGARCH-X model specified in
equation (5). The empirical findings for the dry bulk and the tanker markets are
presented in tables 7 and 8, respectively. The Quasi-Maximum Likelihood
Estimation (QMLE) procedure proposed by Bollerslev and Wooldridge [61] is
employed, as it provides standard errors of the estimated coefficients that are robust
to departures from normality. A number of diagnostic statistics, including the sign
510 T. Syriopoulos and E. Roumpis

Table 6. Lead–lag relationship between price–volume: tanker market.

Handysize Aframax Suezmax VLCC

Pt Vt
Pt Vt
Pt Vt
Pt Vt

i,0 (i ¼ 1,2)
0.014 4.564***
0.006 2.447 0.004 1.470*** 0.004 1.467**
(0.007) (0.661) (0.009) (0.462) (0.003) (0.295) (0.004) (0.267)
ai,1 (i ¼ 1,2) 0.026** 18.105** 0.197** 1.116** 0.234 7.911 0.158* 2.251
(0.061) (8.441) (0.092) (4.147) (0.098) (11.871) (0.063) (3.890)
ai,2 (i ¼ 1,2) 0.100 8.210* 0.019
1.179 0.173
3.707** 0.269*
5.911*
(0.080) (4.140) (0.074) (2.955) (0.119) (8.399) (0.067) (5.100)
i,1 (i ¼ 1,2) 0.002 0.109 0.001 0.092
0.006* 0.167**
0.002 0.273
(0.001) (0.088) (0.001) (0.085) (0.001) (0.070) (0.001) (0.080)
i,2 (i ¼ 1,2) 0.001 0.036 0.002* 0.129
0.001 0.336*
0.001
0.013
(0.001) (0.060) (0.001) (0.099) (0.001) (0.123) (0.001) (0.112)
Q(12) 11.820 9.970 6.729 13.383 10.580 16.670 7.510 4.610
{0.460} {0.618} {0.875} {0.342} {0.565} {0.162} {0.822} {0.970}
Q2ð12Þ 11.470 7.330 13.350 2.578 8.950 17.060 21.090 25.270
{0.489} {0.835} {0.000} {0.998} {0.706} {0.147} {0.049} {0.014}
Grangernger causality tests

Pt causes Vt 8.917 0.106 0.517 1.457
{0.012} {0.899} {0.772} {0.483}
Vt causes
Pt 4.802 3.591 2.100 2.562
{0.090} {0.556} {0.350} {0.278}

Notes: Figures in (), [] and {} are standard errors, t-statistics and exact probability values.
*, ** and *** denote significance at the 10%, 5% and 1% levels, respectively.
The lag length is chosen on the basis of the LR tests and the Akaike information criterion.
The standard errors are corrected for heteroskedasticity using the Newey–West method [67].
Q(12) and Q2ð12Þ are the Ljung–Box Q
statistics on the first 12 lags of the sample autocorrelation function
of standardized residuals and squared standardized residuals, distributed as
2ð12Þ , with a 5% critical value
of 21.03.
Granger causality tests are Wald statistics distributed as
2ðmÞ , where m is the number of the restricted
parameters.

and size bias proposed by Engle and Ng [62], indicates adequacy of the specified
model in explaining return volatility in the shipping markets.
Second-hand vessel price changes exhibit a volatile behaviour in both the dry bulk
and tanker market segments over the sample period. The  and  coefficients
(ARCH and GARCH effect, respectively) are found robust and statistically
significant, indicating ‘reactive’ and ‘persisting’ volatility dynamics. The combined
( þ ) volatility impact appears to be higher in larger vessels than smaller vessels
in both dry bulk and tanker markets. These findings are plausible and in line with
past empirical evidence [11, 12], as smaller vessels are more flexible compared to
larger ones in terms of commercial operation and their market risk tends to be
relatively lower. Furthermore, the leverage term, , is found to be negative and
statistically different from zero particularly in the panamax and capesize classes (dry
bulk market) as well as in the handysize class (tanker market), indicating the
existence of asymmetric effects in these second-hand vessel classes. The asymmetric
volatility impact implies that a negative shock to the system has a relatively stronger
impact on volatility of vessel prices than an equivalent positive shock. The handysize
class in the dry bulk market is an exception, as a negative shock to the system is
found to have a relatively lower impact on volatility compared to positive shocks.
 Second-hand dry bulk and tanker shipping markets 511

Table 7. EGARCH price–volume conditional volatility: dry bulk market.

Handysize Panamax Capesize

The mean return model

0 0.002
0.002
0.003
(0.002) (0.002) (0.001)
[0.404] [0.156] [0.019]
1 0.087 0.197 0.051
(0.045) (0.034) (0.025)
[0.057] [0.000] [0.043]
The conditional variance model

1.610
0.636
1.731
(0.220) (0.125) (0.406)
[0.000] [0.000] [0.000]

0.609
0.762
0.488
(0.134) (0.148) (0.116)
[0.000] [0.000] [0.000]
 0.533 0.778 0.675
(0.051) (0.034) (0.073)
[0.000] [0.000] [0.000]
 0.504
0.232
0.904
(0.098) (0.085) (0.157)
[0.000] [0.000] [0.000]

0.103
0.069
0.107
(0.012) (0.013) (0.048)
[0.000] [0.000] [0.000]
LL 251.327 252.286 252.859
AIC
4.038
4.054
4.064
LR 28.382 42.040 64.750
[0.000] [0.000] [0.000]
Q(12) 15.367 16.416 12.252
[0.222] [0.173] [0.426]
Q2ð12Þ 9.606 9.766 3.808
[0.650] [0.636] [0.987]
Sign and size bias test
Sign bias
0.462 [0.540]
0.783 [0.207]
0.915 [0.062]

Size bias 0.014 [0.731]
0.266 [0.623] 0.879 [0.098]
þ Size bias 0.205 [0.035] 0.117 [0.051] 0.459 [0.007]
Joint test 0.324 [0.093] 0.630 [0.412] 0.723 [0.120]

Notes: Figures in () and [] are standard errors and p-values, respectively.
The standard errors are estimated with the QMLE Bollerslev and Wooldridge [61] procedure.
LL and AIC are the log-likelihood and the Akaike information criterion, respectively.
LR test is the likelihood ratio test, comparing the EGARCH-X specification to the restricted model with
constant variance; the test has a
2ð4Þ distribution with a 5% critical value of 9.488.
Q(12) and Q2ð12Þ are the Ljung–Box Q-statistics on the first 12 lags of the sample autocorrelation function
of standardized residuals and squared standardized residuals, distributed as
2ð12Þ , with a 5% critical
value of 21.03.
The sign and size bias of Engle and Ng [62] is the t-ratio of b in the regression u2t ¼  þ bS
t
1 þ et (sign
bias test); u2t ¼  þ bS
2 þ
t
1 "t
1 þ et (negative sign bias test); ut ¼  þ bSt
1 "t
1 þ et (positive sign bias test),
2 2

where ut are the squared standardized residuals, "t /ht, St
1 is a dummy variable taking the value of 1 when
"t
1 > 0 and 0 otherwise, and Sþ

t
1 ¼ 1
St
1 . The joint test is based on the regression
þ
u2t ¼  þ b1S


t
1 þ b2St
1 "t
1 þ b3St
1 "t
1 þ et. The joint test H0: b1 ¼ b2 ¼ b3 ¼ 0 is an F
test with a 5%
critical value of 2.60.
512 T. Syriopoulos and E. Roumpis

Table 8. EGARCH price–volume conditional volatility: tanker market.

Handysize Aframax Suezmax VLCC

The mean return model

0 0.002 0.002 0.001
0.001
(0.002) (0.003) (0.002) (0.002)
[0.449] [0.481] [0.668] [0.539]
1 0.063 0.221 0.350 0.204
(0.072) (0.100) (0.034) (0.075)
[0.380] [0.027] [0.001] [0.007]
The conditional variance model

2.268
1.286
4.533
8.213
(0.381) (0.967) (0.386) (0.347)
[0.001] [0.183] [0.241] [0.018]
 0.013 0.067 0.236 0.171
(0.130) (0.164) (0.156) (0.183)
[0.009] [0.684] [0.130] [0.350]
 0.401 0.756 0.433 0.593
(0.206) (0.173) (0.504) (0.482)
[0.000] [0.000] [0.390] [0.688]

0.383
0.111
0.081
0.013
(0.164) (0.152) (0.092) (0.129)
[0.020] [0.465] [0.377] [0.919]
 0.015
0.107 0.043
0.168
(0.007) (0.075) (0.054) (0.097)
[0.000] [0.153] [0.424] [0.082]
LL 263.178 219.097 283.288 266.440
AIC
4.234
3.506
4.567
4.288
LR 47.538 7.542 8.381 4.804
[0.000] [0.000] [0.000] [0.000]
Q(12) 18.847 9.457 12.973 12.746
[0.092] [0.664] [0.371] [0.388]
Q2(12) 6.054 9.756 5.931 16.048
[0.913] [0.637] [0.920] [0.189]
Sign and size bias test
Sign bias
0.576 [0.013]
0.451 [0.215]
0.635 [0.346]
0.703 [0.194]

Size bias 0.032 [0.442]
0.322 [0.008]
0.127 [0.412] 0.433 [0.080]
þSize bias 0.114 [0.020] 0.901 [0.104] 0.009 [0.001] 0.251 [0.016]
Joint test 0.217 [0.138] 0.452 [0.227] 0.811 [0.769] 0.512 [0.203]

Notes: Figures in () and [] are standard errors and p-values, respectively.
The standard errors are estimated with the QMLE Bollerslev and Wooldridge [61] procedure.
LL and AIC are the log-likelihood and the Akaike information criterion, respectively.
LR test is the likelihood ratio test, comparing the EGARCH-X specification to the restricted model with
constant variance; the test has a
2ð4Þ distribution with a 5% critical value of 9.488.
Q(12) and Q2ð12Þ are the Ljung–Box Q-statistics on the first 12 lags of the sample autocorrelation function
of standardized residuals and squared standardized residuals, distributed as
2ð12Þ , with a 5% critical value
of 21.03.
The sign and size bias of Engle and Ng [62] is the t-ratio of b in the regression u2t ¼  þ bS
t
1 þ et (sign bias
test); u2t ¼  þ bS
2 þ
t
1 "t
1 þ et (negative sign bias test); ut ¼  þ bSt
1 "t
1 þ et (positive sign bias test), where
2 2

ut are the squared standardized residuals, "t /ht, St
1 is a dummy variable taking the value of 1 when
"t
1 > 0 and 0 otherwise, and Sþ

t
1 ¼ 1
St
1 . The joint test is based on the regression
þ
u2t ¼  þ b1S


t
1 þ b2St
1 "t
1 þ b3St
1 "t
1 þ et. The joint test H0: b1 ¼ b2 ¼ b3 ¼ 0 is an F-test with a 5%
critical value of 2.60.
 Second-hand dry bulk and tanker shipping markets 513

The variation in the asymmetric volatility reaction between different segments for the
same ship type may be related to the divergences in the organizational structure,
demand and supply conditions and competitive environment in the dry bulk and
tanker markets. Nevertheless, the impact of asymmetric volatility effects in the
shipping markets is consistent with the limited past findings, as in Chen and
Wang [63]. This latter study examines daily returns of three different vessel sizes in
the dry bulk market and reports a negative return–volatility relationship, whereas
the leverage effect is more significant in downward than upward market movements
and in larger than smaller vessels. Asymmetric volatility effects have been widely
reported in the capital markets (e.g. [64]).
The impact of (lagged) trading volume, , on different second-hand vessel classes
is found to exert a mixed effect in the dry bulk and tanker market segments.
As trading activity in the sales and purchase of second-hand vessels increases, there is
a decline in the volatility of ship prices in all of the vessel classes in the dry bulk
market. The picture of the volume–volatility relationship appears to be mixed in the
tanker market, as this is found to be negative in the aframax and VLCC classes but
not statistically robust at the 5% significance level. This relationship, on the other
hand, is found to be positive in the handysize and suezmax classes but its impact
appears to be empirically weak. The inverse volume–volatility relationship does not
appear to be consistent with relevant findings in the capital markets (e.g. [38, 40, 44).
In contrast to the dry bulk market, the impact of volume as an informational flow
proxy appears to be limited in explaining tanker vessel price volatility. The negative
relationship between price changes and trading volume may be associated with
markets that are characterized by thin trading [3]. High volatility is anticipated in
markets with thin trading, since prices may deviate from fundamentals due to
infrequent price quotes and limited information flows. However, the variance of
price changes is expected to decrease with increasing number of traders resulting to
increased information flows to the market, improved market transparency, limited
mispricing and reduced market risk [10]. Highly liquid markets, on the other hand,
with a large number of traders and significant trading activity are anticipated to
exhibit a positive trading volume–volatility relationship. Hence, a modified version
of the MDH is consistent with the existence of a positive or a negative volume–
volatility relationship, depending on the number of traders in the market [3, 10].
An interesting outcome is related to the comparison of the empirical findings from
the unrestricted (volume inclusion) relative to the restricted (volume exclusion)
volatility model [65]. In line with Lamoureux and Lastrapes [33], we find that, when
the impact of volume is taken into account as a proxy for the information flows,
volatility effects are reduced in all vessel classes in both shipping market segments.
The empirical findings on the volume–volatility relationship in the dry bulk
market are in line with those provided by Alizadeh and Nomikos [10], who also
conclude that increases in trading activity lead to a reduction in market volatility.
This was partly attributed to thin trading which implies that increase in trading
activity result in price transparency and stability.

6. Conclusions
This paper has focused on the investigation of the causal relationship between
trading volume and vessel prices, returns and volatility in different second-hand
vessel classes in the dry bulk and tanker markets. The main issue has been whether
514 T. Syriopoulos and E. Roumpis

information about trading volume is useful in improving predictions of future

returns and volatility in a dynamic context. It has been shown that studying
shipping prices jointly with trading volume is useful and volume can be a proxy when
prices are noisy and traders cannot obtain the full information signal from
prices alone.
The relationship between volume and returns per se was initially examined by
means of causality tests. A positive contemporaneous relation was detected between
price changes and activity in the sale and purchase market for dry bulk and tanker
vessels, consistent with similar findings in the capital markets. It was concluded that,
contrary to the predictions of some theoretical models, past trading volume levels do
not generally exert any statistically significant Granger-causal impact on current
shipping returns. Past returns, however, were shown to lead current trading volume
and increases in returns are anticipated to have a positive impact on trading volume,
particularly in the handysize and panamax (dry bulk market), as well as in the
handysize and aframax (tanker market) classes. In the context of second-hand
shipping markets, this outcome implies that higher returns, reflected in higher capital
gains, induce more transactions resulting to increased trading volumes.
The asymmetric response of ship price volatility to shocks in the market was
depicted by an EGARCH asymmetric conditional volatility model, particularly in
the cases of panamax, capesize (dry bulk market) and handysize classes (tanker
market). The impact of volume on volatility was found to be limited in the tanker
market. However, a negative relationship between trading volume and price
volatility has been detected mainly in the dry bulk market, which seems to be in
contrast to past findings in capital markets literature. This indication, though, may
be plausible in the shipping markets, taking into account thin trading, limited trading
transaction transparency and absence of official sales and purchase price quotes.
Information arrivals in the shipping markets then may flow sequentially rather
than simultaneously to market participants, who adjust their equilibria accordingly.
When trading volume is included as a proxy for information flows in the conditional
variance model, time-varying volatility persistence in the shipping markets
partly declines. Hence, although trading volume level was not found to predict
future price movements it is an important factor in explaining shipping price
volatility, as higher volume indicates lower volatility across different vessel size
classes [66].
These empirical conclusions can contribute to a better understanding of
the microstructure of shipping markets. Furthermore, market participants may
gain an insight into the characteristics and dynamics of shipping price volatility.
This, in turn, can be useful for investors who construct their portfolios of real
assets with a view to attain superior capital gains controlling for the underlying
investment risk.

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46. There are three major vessel classes that are used for the transportation of different dry
bulk commodities across different routes worldwide. Handysize vessels (30 000 dwt)
transport grain mainly from North America, Argentina and Australia, and minor bulk
products (such as sugar, fertilizers, steel and scrap, forest products, non-ferrous metals
and salt) from any geographic origin. Panamax vessels (73 000 dwt) are used primarily to
carry grain from North America, Argentina and Australia and coal from North America,
Australia and South Africa. Capesize vessels (150 000 dwt) transport iron ore mainly
from South America and Australia and coal from North America, Australia and
South Africa.
47. Four major tanker vessel classes are studied. Handysize tanker vessels (20 000–
40 000 dwt) are involved in the transportation of dirty petroleum products and small
shipments of crude oil. Aframax vessels (40 000–80 000 dwt) are employed in crude oil
transportation but also contribute to oil product transportation to some extent.
The employment of handysize tankers in clean product transportation is mainly due to
the small parcel size of petroleum products, which usually do not exceed 60 000 tons. The
two larger vessel classes, that is Suezmax (80 000–160 000 dwt) and VLCC (160 000 dwt
and over), are involved in crude oil transportation. Due to the limited number of
petroleum export and import areas around the world as well as draught and capacity
restrictions in certain oil terminals, ports and canals, the operation of larger tankers is
restricted to certain routes. Handysize tankers are mainly employed in regional dirty
 Second-hand dry bulk and tanker shipping markets 517

product transportation (US Gulf-US east coast, Persian Gulf, west Europe and the Far
East) and occasionally in long-haul routes (such as Middle East to Far East and Europe).
The major routes for Aframax tankers are from West Africa and North Sea to the
US east coast, from north Africa to the Mediterranean and north Europe and from the
Persian Gulf to the Far East. Suezmax tankers are mainly operating between the Persian
Gulf and north-west Europe through the Suez Canal as well as West Africa to the
US Gulf and the US east coast. The three major routes for VLCCs are from the
Persian Gulf to the Far East, North America and north-west Europe via the Cape.
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of serving different routes, size cargoes and ports. Hence, smaller size tankers are
anticipated to be more flexible compared to larger ones in terms of their commercial
operation [12].
48. The data are obtained from Clarkson’s Research. Second-hand ship prices are based on
the estimates obtained from the sale and purchase brokers of H. Clarksons & Co.
shipbrokers. Prices are collected for the main vessel types and relate to market sales
where these have taken place and to brokers’ best estimates when no sale has occurred.
Prices are for standard ships in average condition, built at Far Eastern or European
shipyards but with no account taken for survey status or condition which could affect
their values. Sale and purchase volume data are constructed in a similar approach based
on the sale and purchase transactions that are known to have taken place in the market.
Monthly price changes,
Pt, of prices Pt, are defined as log (Pt/Pt-1) and are preferred
over total returns (returns including profit from vessel operations), as they are more
relevant for investigating the issue of ship price formation. It has been shown that total
returns are almost perfectly correlated (above 99%) with price changes in all cases and
yield similar quantitative results [10].
49. This is in accordance with past empirical findings [10, 11, 12].
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first difference of the ship prices was also tested but no unit root in first differences was
found.
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are statistically different from zero (based on joint Wald tests). It should be noted that
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‘causality’ measures linear precedence and information content but does not by itself
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1 þ  ht
1 þ  dt
1 "2t
1 (dt
1: dummy
variable, 1 if "t
1 < 0, 0 if "t
1 > 0); also, the generalized quadratic ARCH
(GQARCH) model: ht ¼ ! þ  ("t
1 þ )2 þ  ht
1 (! > 0,  > 0,  > 0 and : constant
parameters).
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518 T. Syriopoulos and E. Roumpis

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upon request.
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shown not to be affected by differences in the age of the vessels, as performing the
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