The dynamics between newbuilding ship price volatility and freight volatility in dry bulk shipping market

Dry bulk shipping market is a key element of international trade. Newbuilding vessel prices tend to fluctuate drastically, however the price volatility mechanism and major determinants were neglected, regardless of the abundant research on newbuilding price formation and price determinants. This paper applied the GARCH (1, 1) model to investigate the key determinants of newbuilding vessel price volatility and how freight rate affects it. The empirical results revealed that freight rate volatility is the most important and the positive determinant for newbuilding price volatility in capesize, panamax, handymax and handysize sectors. Shipyard capacity change, exchange rate volatility and shipbuilding cost volatility are key determinants for some vessel types, while secondhand vessel price volatility is not the key determinant for any vessel type. Our findings could help the practitioners better understanding the market dynamics and managing the market risks.