Systematic risk behavior in cyclical industries: The case of shipping

• We explore macroeconomic and industry-level effects on stock betas of shipping companies.
• The high levels of betas match the fundamental characteristics of the shipping industry.
• Shipping firms exhibit distinct industry-specific beta dynamics.
• Beta variation is explained by changes in economic conditions and industry-specific risk factors.

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.