Macroeconomic Factors and International Shipping Stock Returns
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Macroeconomic Factors and International Shipping Stock Returns COSTAS TH GRAMMENOS1 & ANGELOS G ARKOULIS1 1
City University Business School, Centre for Shipping, Trade and Finance, Frobisher Crescent, Barbican Centre, London, EC2Y 8HB, UK. E-mail: [email protected]
The aim of this paper is to present evidence, for the first time, about the relationships of global macroeconomic sources of risk with shipping stock returns internationally, for the period 1989:12 ± 1998:3. For this purpose, a sample of 36 shipping companies (listed in 10 stock exchanges worldwide) is used in the study. The return on the world equity market portfolio and innovations in the following prespecified set of global macro variables are employed in the analysis: (a) industrial production; (b) inflation; (c) oil prices; (d) fluctuations in exchange rates against the US dollar; and (e) laid up tonnage. Several significant relationships are established between returns of international shipping stocks and global risk factors. Oil prices and laid up tonnage are found to be negatively related to shipping stocks, whereas the exchange rate variable displays a positive relationship. In addition, it is found that, in general, the macroeconomic factors exhibit a consistent pattern in the way in which they are linked to the shipping industry, across countries. International Journal of Maritime Economics (2002) 4, 81-99. DOI: 10.1057/palgrave/ijme/9100033
Keywords: Shipping stocks; industrial production; inflation; oil prices; exchange rates; laid up tonnage.
INTRODUCTION Studies on industry returns and risk have been performed at a national level. Saunders and Yourougou (1990) and Isimbabi (1994), for example, compare the
C Th Grammenos & AG Arkoulis Macroeconomic Factors and International Shipping Stock Returns
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stock market perception of banking risk to other industrial sectors ± such as utilities, petroleum refining, and others ± in the US. Both studies employ a multi factor model in an attempt to examine the sensitivity of returns of companies in each industry to a set of macroeconomic and industry risk factors. Berry et al. (1988), Eun and Resnick (1992), Chen and Jordan (1993), and Kavussanos and Marcoulis (1997) are studies that also use industrial classification within the same country. In addition, previous studies have examined risk pricing in relation to a set of macroeconomic factors according to size (Chen et al., 1986; Poon and Taylor, 1991) and according to industry classification (Chen and Jordan, 1993). Studies on stocks in the shipping industry have been very limited in number and scope. For instance, Grammenos and Marcoulis (1996) examine a cross section of shipping stock returns by using a set of microeconomic factors. The sensitivities of shipping stock returns to global macroeconomic factors, however, have not been examined in the past. The objective of this paper is to fill this gap in the literature by presenting evidence about the relationships of world macroeconomic news with shipping stock returns internationally.
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