PREDICTING BALTIC DRY INDEX WITH LEADING INDICATORS

The Baltic Dry Index (BDI) is issued by the Baltic Exchange on a daily basis and it signals for the average cost of shipping raw materials on a number of shipping routes. Baltic Dry Index is considered by both the private and public authorities as an important indicator for freight rates, international trade and economic activity. Conducting a long-term prediction for dry bulk indices is challenging due to the high volatility of the dry bulk freight market; therefore, a linear prediction spanning a shorter time period offers both greater accuracy and can be used as a tool for speculation. The goal of this paper is to form a linear benchmark model through Box-Jenkins approach including explanatory variables selected rigorously to forecast Baltic Dry Index. Using monthly data between January 2010 and June 2017, the analysis results point out an ARIMAX (10,1,0) model with spot prices of gold and silver, United States 10-year bond yield and commodity price index composed of minerals, ores and metals.