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Liquidity Risk Premia in the International Shipping Derivatives Market

The study examines the existence of liquidity risk premia on freight derivatives returns. The Amihud liquidity ratio and bid-ask spreads are utilized to assess the existence of liquidity premia. Other macroeconomic variables are used to control for market risk. Results indicate that liquidity risk is priced and both liquidity measures have a significant role in determining freight derivatives returns. Consistent with expectations, both liquidity measures are found to have positive and significant effects on the returns of near-month freight derivatives contracts. The results have important implications for modeling freight derivatives returns, and consequently, for trading and risk management purposes.

Published on 8th December 2014
Authors Amir Alizadeh Cass Business School, City University Konstantina Kappou ICMA Centre, Henley Business School, University of Reading Dimitris Tsouknidis Regent’s University London Ilias Visvikis World Maritime University
Series Reference 2014-15