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Publication Systematic risk behavior in cyclical industries: The case of shipping

Type

Working Paper

Institution(s)

University of Hamburg

Year

2015

Author(s)

Wolfgang Drobetz
Christina Menzel
Henning Schröder

Research Area

Corporate Finance, Ship Finance

Keywords

Maritime financial management, equity beta, time-varying systematic risk, cost of capital

Abstract

This study explores macroeconomic and industry-level effects on corporate systematic risk (or beta) for the international shipping industry. We document the extent to which stock market betas fluctuate over time in this asset-intensive and cyclical industry. Moreover, we analyze the fundamental determinants of systematic risk. We find evidence for high levels of systematic risk in shipping stocks, which match the fundamental risk characteristics of the industry (such as high operational risk and high financial as well as operating leverage). Shipping firms exhibit very distinct industry-specific beta dynamics compared to firms from benchmark sectors or the average firm in the S&P 500 index. Changes in both economic conditions and industry-specific risk factors explain large proportions of beta variation in the cross-section of firms and over time.

Presentations

IFSPA 2014, World Finance and Banking Symposium 2014, FMA Europe Conference 2015, World Finance Conference 2015, IAME Annual Meeting 2015

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