20 | P a g e MEASURING LEVEL OF RISK EXPOSURE IN TANKER SHIPPING FREIGHT MARKETS

The authors wish to express their thanks for helpful comments on earlier drafts by Prof. Peter Howells and other members of the Centre for Global Finance. In addition, the authors are grateful for positive criticism and feedback from participants of the 2010 IAME conference. All remaining errors are the sole responsibility of the authors. This is an attempt to study the volatility structure of the tanker freight market and its exposure to market shocks. Therefore, we introduce a two state regime to investigate the possibility of two different volatility structures in shipping tanker freight markets. Empirical evidence is found that in general terms, shipping tanker freight returns, shift between two regimes, a high volatility regime and a low volatility regime and that market shocks in general increase the volatility of freight returns and has a lasting effect. In regards to measuring freight risk, it seams that semi-parametric approaches are appropriate methods for measuring level of risk exposure for shipping freight markets