|dc.description.abstract||This thesis investigates if forward freight agreements (FFA) can be used to hedge stock price
risk in the dry bulk shipping sector. We establish a cointegrated relationship between FFAs and
dry bulk stock prices based on the link between freight rates and stock price returns of dry bulk
companies. Using contracts in the Capesize, Panamax and Supramax segment, we evaluate
hedge efficiency and minimum variance hedge ratios derived from the Ederington regression.
The hedge efficiency is compared across various hedge intervals, different maturities and
selected companies operating in the dry bulk shipping segment.
We discover that the investigated attributes have differing implications for the hedge
efficiency. From the comparison across hedge intervals, we find that hedge efficiency both
increases and decreases with increasing hedging horizon. Thus, our results are rather unclear,
and we cannot draw any conclusions about the implication of hedge horizon. Secondly, we
show that forward contracts with a maturity of one calendar year achieve, in general, higher
hedging efficiency than forward contracts with a maturity of one quarter. Furthermore, our
results indicate that the hedging efficiency of stock prices is partially explained by a company’s
risk profile in the physical market. Finally, we compare our findings to other studies, and find
that the hedging efficiency of FFAs on stock price risk is, in general, mediocre.
We believe that our findings are important for both private investors and investment
funds trading in the shipping stock market. Our findings provide useful insight to risk
management for equity investors in the dry bulk shipping sector.||en_US