Modeling volatility of Baltic dry bulk freight index

The paper is to investigate features of fluctuation of international dry bulk shipping market using Baltic dry bulk freight index. After fundamental statistical analysis on data, R/S and GPH tests are employed to model long memory of volatility of the indices, which interprets the existence of long memory and then leverage effect in the market subdivided by ship types including Handymax, Panamax, and Capesize. Moreover, VaR (value-at-risk) of spot freight rates in the dry bulk shipping market with EGARCH (Exponential ARCH) VaR model is used to further the study on volatility of the indices because of the daily return series with factors of volatility clustering and significant ARCH (Autoregressive Conditional Heteroskedastic) and the distribution with characteristics of fat tail. The empirical results suggest the operators and investors in the dry bulk shipping market to increase operational profits and reduce investment risks according to the long memory and the VaR.