Dynamics of Dry Bulk Freight Market: Through the Lens of a Common Stochastic Trend Model

This paper shows the possibility that, as a simple average, BDI occasionally over- or under-states the status of global dry bulk freight market. In order to overcome this shortcoming, this paper suggests an alternative method of calculating new index by using a common stochastic trend model. This econometric approach to understanding the dynamics of dry bulk freight markets not only provides new index, but also gives a decomposition method. That is, through this lens of common stochastic trend model, we can decompose the freight data into common (or permanent) and idiosyncratic (or transitory) components.