An Empirical Study On The Price Discovery Function Of Crude Forward Freight Agreement

The international crude shipping market is an important part of international shipping market and it’s also very important to the world economic development.Many factors impacts the international crude shipping market,so the freight fluctuates frequently.It’s very important for the related corporation to control risks.Shipping industry learned from the experience of the development of financial derivatives and developed the forward freight agreement,hoping for the shipping market participants can use it to hedge freight risk. Price discovery is one of the important functions of futures, forward freight agreements is a similar product futures, in theory, should have a price discovery function. If forward freight agreements have a price discovery function, it can be used to predict the future trend of freight, to provide a reference for the relevant corporations to make decisions,so it is necessary to verify the price discovery function of forward freight agreements.In this paper, the crude oil forward freight agreement market and the spot market are the research object.1 use the unit root test, Johansen cointegration seized, vector autoregression model, Granger causality test, impulse response function analysis,variance decomposition to verify the price discovery function of the crude oil forward freight agreement market. The empirical results show that spot month contract price and 1-month contract price are cointegrated with spot freight respectively,2、3、4-month contract price and the spot freight rates are not cointegrated;spot month contract price and 1-month contract price are mutually Granger reasons with spot freight respectively, there is a clear two-way causality;forward market has a more significant impact on the future spot freight than the spot market, and 1-month contract market plays a dominant role.We conclude that spot month contract and 1-month contract have a good price discovery function and price discovery function of 1-month contract is much stronger than the spot month contract, and 2,3,4-month contract does not have a price discovery function. When associated enterprises in the TD3 route using the price discovery function of forward freight agreements for the production and management decision-making reference, should select the spot month contract and 1-month contract, avoiding select 2、3、4-month contract.