Abstract Exchange Traded Funds (ETFs) are investment funds traded on stock exchanges that hold financial assets such as commodities, stocks, bonds, currencies, futures contracts, or debt. ETFs allow shareholders indirect ownership of the underlying assets and entitlement to associated profits, such as interest or dividends. This study investigates the relationship between the trading of a dry-bulk ETF in the maritime sector and its effect on the volatility of dry-bulk spot freight rates. Using GARCH (Generalized Autoregressive Conditional Heteroskedasticity) models, we analyse asymmetric volatility dynamics across two periods, March 2014 to March 2018 and March 2018 to March 2022, while controlling for global economic factors including West Texas Intermediate (WTI), Brent oil prices, and the S&P 500 Commodity Index. Our findings reveal a significant positive correlation between the dry-bulk ETF’s presence and increased volatility in dry-bulk spot rates, with notable differences observed between the Capesize and Panamax vessel segments. The introduction of the dry-bulk ETF has materially influenced spot market dynamics, affecting decision-making processes within the sector. This research contributes novel insights into the financialization of the dry-bulk shipping market, providing valuable implications for shipowners, charterers, regulators, and investors. In particular, higher spot-rate volatility can affect chartering strategy and contract selection (spot vs. period), hedging intensity via FFAs/ETFs, and earnings-at-risk and margining liquidity needs. Understanding how ETFs impact market risk is critical for strategic planning and maintaining stability in the maritime freight market.
Gerakoudi et al. (Mon,) studied this question.