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Stock Market Returns and Shipping Freight Market Information: Another Market Puzzle!

Last Updated on 10 February, 2024 by Rejaul Karim

In their paper “Stock Market Returns and Shipping Freight Market Information: Yet Another Puzzle!“, Amir H. Alizadeh and Yaz Gulnur Muradoglu present an intriguing analysis of the predictive ability of shipping freight rates on stock market returns.

The authors emphasize the integrated nature of contemporary global economies, suggesting that shipping freight rates convey vital information about economic activity, which subsequently impacts stock returns. Their findings indicate that the results are both statistically and economically significant and cannot be attributed solely to time-varying risk premia, as shipping freight rate changes also significantly predict negative excess returns.

The research supports the delayed reaction hypothesis, positing that investors may be slow to respond to information related to shipping freight rate fluctuations.

Additionally, the results remain robust across both worldwide and international stock indexes, making this study a noteworthy contribution to the understanding of stock market return predictors and the implications of shipping freight market information.

Abstract Of Paper

Changes in shipping freight rates predict stock market returns. In today’s global world, where economies are linked through international trade, shipping freight rates carry information about economic activity which is reflected in stock returns. Our results are statistically and economically significant and cannot be explained by time-varying risk premia as shipping freight rate changes significantly predict negative excess returns. Consistent with the delayed reaction hypothesis, it seems that investors are slow in responding to the information on changes in shipping freight rates. Moreover, results are robust across world and international stock indexes.

Original paper – Download PDF

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Author

Amir H. Alizadeh
City University London – The Business School

Yaz Gulnur Muradoglu
City University London – The Business School; Queen Mary University of London

Conclusion

In conclusion, the study “Stock Market Returns and Shipping Freight Market Information: Yet Another Puzzle!” by Amir H. Alizadeh and Yaz Gulnur Muradoglu underscores the predictive power of shipping freight rate changes on stock market returns.

The authors’ findings emphasize the intertwined connection between today’s global economies and international trade. The results demonstrate the statistical and economic significance of shipping freight rates bearing information that ultimately influences stock returns. Furthermore, the research supports the delayed reaction hypothesis, suggesting that investors may take time to react to updated shipping freight rate information.

Importantly, the conclusions drawn from the study remain steadfast across global and international stock indexes. Overall, this research offers crucial insights into the relationship between stock returns, shipping freight rates, and market efficiency, providing valuable knowledge for investors, market analysts, and policymakers in the world of international trade.

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FAQ

Q1: What is the primary focus of the paper by Amir H. Alizadeh and Yaz Gulnur Muradoglu?

The paper investigates the predictive ability of shipping freight rates on stock market returns. It explores how changes in shipping freight rates, indicative of economic activity in today’s interconnected global economies, impact stock returns.

Q2: What key findings are highlighted in the paper regarding the relationship between shipping freight rates and stock market returns?

The research indicates that changes in shipping freight rates have both statistical and economic significance in predicting stock market returns. The predictive power remains robust and cannot be solely attributed to time-varying risk premia, as shipping freight rate changes significantly predict negative excess returns. The study also supports the delayed reaction hypothesis, suggesting that investors may be slow to respond to information related to shipping freight rate fluctuations.

Q3: How generalizable are the results, and what types of stock indexes were considered in the study?

The results of the study are robust and apply across both worldwide and international stock indexes. This suggests that the impact of shipping freight rate changes on stock market returns is a consistent phenomenon observed in various stock markets globally.

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