Optimal investment timing in the dry bulk shipping sector

• Option games approach to investment timing in the dry bulk shipping market.
• Examines the impact of time-to-build on the exercise strategy.
• Provides a rational explanation for boom-and-bust cycles in shipping.
• Findings are compared with the actual behavior of shipping investors as well as a trading strategy.
• The equilibrium exercise strategies are estimated in real time.

The aim of this paper is to illustrate, for the first time, the performance of optimal perfectly competitive investment strategies based on option games in dry bulk shipping. Using a dataset of the Capesize market development over the period January 2000–May 2013 the author derives the stochastic dynamic equilibrium in that market. Moreover, the author examines the effect of newbuildings completion delays and finds that moving from completion delays to no time-to-build reduces the trigger value. The current analysis brings about additional insights and helps explain the existence of boom-and-bust cycles in shipping.