The relation between bid–ask spreads and price volatility in forward markets View Full Text


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Article Info

DATE

2005-09

AUTHORS

Roy A Batchelor, Amir H Alizadeh, Ilias D Visvikis

ABSTRACT

The forward freight agreement (FFA) market developed in the 1990s and is growing very fast as the main derivatives market offering agents in the shipping and transportation industry a risk management instrument. This paper examines the relationship between expected volatility and bid–ask spreads (BASs) in this derivatives market where the underlying asset is a service rather than physical or financial assets. The study employs a two-step modelling specification. In the first step, the GARCH specification is used to model the volatility of the FFA prices; in the second step, the relationship between expected conditional volatility (led by one day) and the current BAS using the generalised method of moments (GMM) approach is investigated. The results indicate that there is a positive relationship between BASs, and expected price volatility in three out of four FFA contracts, after other factors are controlled. More... »

PAGES

105-125

Identifiers

URI

http://scigraph.springernature.com/pub.10.1057/palgrave.dutr.1840012

DOI

http://dx.doi.org/10.1057/palgrave.dutr.1840012

DIMENSIONS

https://app.dimensions.ai/details/publication/pub.1036059735


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