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

Type

Refereed Article

Year

2016

Author(s)

Wolfgang Drobetz
Christina Menzel
Henning Schröder

Journal

Name of Journal

Volume

88

Pages

129-145

Research Area

Ship Finance, Asset Pricing 

Keywords

Maritime financial management, shipping stocks, CAPM, time-varying systematic risk, real determinants, industry risk

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 financial and operating leverage). Shipping firms exhibit 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.

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