An analysis of intraday liquidity patterns in the dry bulk FFA market

Abstract

This thesis investigates different liquidity measures in the dry bulk FFA market by analyzing intraday data of quarterly FFA contracts obtained from Braemar Atlantic Securities Limited. Through intraday data, we conduct analysis previously not accessible on FFA contracts. Due to the lack of previous research on the subject, this paper applies theory and literature from analysis with intraday data in stock markets. In addition, the paper uses theory and literature from previous research on the shipping market. We perform Ordinary Least Squared regressions on liquidity measures such as bid-ask spread, volatility, and volume, in addition to providing illustrations of possible patterns through average statistics in figures. We discover unexpected patterns throughout the day in regard to bid-ask spreads compared to stock markets. Bid-ask spreads follow a downward trend throughout the day for Capesize and Panamax contracts, while Supramax has some indication of bettering bid-ask spreads in later trading hours. The investigation of volatility provides evidence of contracts with longer time to expiration having less volatility than those with shorter maturities. Furthermore, volume has suggestions of fewer transactions at opening and closing compared to the rest of the day. In this paper, we try to find connections between information asymmetry and the different liquidity measures, using time-dummies at the publication of relevant indices. However, the findings are ambiguous, and we cannot justify the interpretations. However, there is a suggestion of bettering BAS values as information flows to the market. We believe that conducting such an analysis can benefit hedgers, brokers, clearing houses, investors, and other participants in the dry bulk shipping market, as liquidity in many ways is connected to transaction costs and risk management. Followingly, identifying liquidity patterns in the FFA market would be of benefit to market participants. We hope that our thesis will be of inspiration to future studies.