A cointegrating stock trading strategy: application to listed tanker shipping companies

Abstract

In the current paper, we propose a strategy to trade a portfolio of listed shipping companies in the US market. In particular, we estimate a co-integrating relationship between the weekly stock market returns of a portfolio of tanker shipping companies and the Baltic Tanker Index, exploiting the close relationship between freight rates and the stock market performance of shipping companies. Our results suggest that a trading strategy on the basis of a co-integrating relationship and a simple moving average rule outperforms, by approximately 50%, a standard buy-and-hold strategy in various investment horizons, often by a very wide margin. Given the latter, the results allow us to enhance the current literature on shipping finance by providing evidence of how simple investment strategies can benefit both retail and institutional investors who do not have direct exposure or experience in the shipping industry by allowing them to include shipping stocks in their portfolios.

Sentiment Augmented Supply and Demand Equations for the Dry Bulk Shipping Market

“…More recently, Alizadeh and Nomikos (2007) employed a dataset of monthly data for 28 years and showed that co-integrating techniques can be more useful for shipping investors, again showcasing that fundamentals play an important role. These results are complemented by Michail and Melas (2019), who showed that a co-integrating technique based on fundamentals is also useful for stock trading purposes.…”

Identifying Key Financial, Environmental, Social, Governance (ESG), Bond, and COVID-19 Factors Affecting Global Shipping Companies—A Hybrid Multiple-Criteria Decision-Making Method

“…In December 2019, the coronavirus disease, or COVID-19, first emerged in China and, by July 2021, had quickly spread to 220 countries, infecting over 188 million people [52]. Most governments implemented lockdowns of various intensities in response [53]. The volume of cargo transported by sea shrunk considerably to halt the spread of the virus in vessels and at ports [54].…”

“…Few studies have investigated the specific reactions of the shipping industry to these events. Michail and Melas [53] examined how much the COVID 19 pandemic affected the shipping industry for the freight rates of tankers and bulk shipping vessels.…”