Transportation Research Part E: Arthur J. Lin, Hai Yen Chang, Jung Lieh Hsiao T

Transportation Research Part E 127 (2019) 265–283
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Transportation Research Part E

journal homepage: www.elsevier.com/locate/tre
Does the Baltic Dry Index drive volatility spillovers in the

T
commodities, currency, or stock markets?
Arthur J. Lina, Hai Yen Changb, , Jung Lieh Hsiaoa
⁎
a
Graduate Institute of International Business, National Taipei University, No. 151, Daxue Road, Sanxia District, New Taipei City 23741, Taiwan, ROC
b
Department of Banking and Finance, Chinese Culture University, 55, Hwa-Kang Road, Yang-Ming-Shan, Taipei 11114, Taiwan, ROC
ARTICLE INFO ABSTRACT
Keywords: This study examines the spillover effect of the Baltic Dry Index (BDI) on the commodities futures,
Volatility spillover currency, and stock markets by using a tri-variate VAR-BEKK-GARCH-X model on a dataset from
VAR–BEKK–GARCH-X model October 1, 2007 to October 31, 2018. Results reveal that the BDI spillover effect is time-varying.
Baltic Dry Index The spillover effect of the BDI was insignificant during the whole sample period but significant
Dry bulk shipping
during the 2008/2009 global financial tsunami, and its influence increased during the
2014–2016 economic slowdown in China. The BDI serves as a short-term rather than long-term
indicator for the commodities, currency, and equity markets, especially during financial crises.
1. Introduction
Sea transport is essential to the world economy as over 90% of global trade, including a wide range of commodities, is carried
across the oceans. Dry bulk carriers constitute approximately 40% of sea transport compared with 38% for tankers and 22% for
container ships (IMO, 2018). Dry bulk freight rates are commonly represented by their leading indicator, the Baltic Dry Index (BDI),
whose daily value is reported by the London-based Baltic Exchange (2018). Wall Street investment bankers and hedge fund managers
widely regard the BDI as a leading economic indicator of other financial markets such as the equities and commodities markets.
Muth (1961) described ways in which people’s expectations partly decide the outcome in a number of scenarios. The theory of
rational expectations states that individuals make decisions based on three primary factors: their human rationality, the information
available to them, and their past experiences (Muth, 1961). This theory suggests that individuals’ current expectations regarding the
economy can influence the state of the economy in the future. In addition, Mills (1961) introduced the adaptive expectations hy-
pothesis. Evans and Ramey (2006) state that individuals adjust their expectations of the future based on recent past experiences and
events.
Signal theory describes ways in which information is conveyed from one individual or market to another (Spence, 1973). Con-
sequently, freight rates may have correlations with the stock market because freight revenue shapes the stock prices of shipping
companies (Grammenos and Arkoulis, 2002). In addition, freight markets could be associated with the currency market because the
value of commodities carried by dry bulk vessels is mostly expressed in U.S. dollars. Appreciation of the U.S. dollar may cause
commodities prices to fall. Moreover, some evidence reveals a connection between the freight market and commodities markets
because freight rates synchronize with commodities in business cycles (Lopez, 2014; Papailias et al., 2016).
According to Stopford’s (2009) shipping market model, the key determinants of demand in the shipping market are the global
economy and the seaborne commodity trades. The demand for shipping services is affected by macroeconomic factors such as gross
⁎
Corresponding author.
E-mail addresses: lj@mail.ntpu.edu.tw (A.J. Lin), irischang1014@gmail.com (H.Y. Chang), Jhsiao@mail.ntpu.edu.tw (J.L. Hsiao).
https://doi.org/10.1016/j.tre.2019.05.013
Received 24 September 2018; Received in revised form 27 March 2019; Accepted 24 May 2019
Available online 30 May 2019
1366-5545/ © 2019 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/BY-NC-ND/4.0/).
A.J. Lin, et al. Transportation Research Part E 127 (2019) 265–283
domestic product as well as inflation, interest, and exchange rates. Freight market supply is mainly determined by the size of the
world fleet, fleet productivity, and freight rates. Similarly, some of these macroeconomic factors drive other financial markets, such
as the stock, currency, and commodities markets.
However, the existing literature mainly focuses on intra-market activities in the shipping sector such as freight rate volatility
across shipping segments. Little information is found on the connection between the freight market and other financial markets over
an extended period of time. Based on the theories of rational expectations and adaptive expectations as well as signal theory, this
paper aims to provide novel empirical evidence of an exogenous effect of the BDI on the stock, currency, and commodities futures
markets by investigating the existence and direction of dynamic return volatility spillover during an 11-year time span that includes
both financial and non-financial crisis periods.
To detect the volatility spillover pathway, we selected the following four representative financial market indices for our study:
Baltic Dry Index (BDI), adjusted Dow Jones Global Shipping Index (ADJGS), U.S. Dollar Index (DXY), and Goldman Sachs Commodity
Index (GSCI). Specifically, we investigated the return and volatility spillover effects of exogenous BDI on ADJGS, DXY, and GSCI.
The examination of mean return and volatility spillovers has several implications for participants in maritime and financial
markets such as private and institutional investors and managers of shipping companies. First, investors evaluate risk and returns
while making investment decisions. Return from shipping company stocks provides investors with a measure of profitability, whereas
volatility measures the risk of an investment. An understanding of potential return and volatility across financial markets may
prevent potential losses for risk-averse investors (Drobetz et al., 2010). Thus, the identification of dynamic return and volatility
spillover provides investors with insights when they consider entering into or exiting from a financial market. Similarly, this in-
formation is useful for shipping company managers in accepting or rejecting a vessel purchase proposal. Second, return and volatility
spillovers inform market participants of possible spreading of turmoil among financial markets, especially during a financial crisis.
Therefore, the results of volatility spillover over an extended period before, during, and after a financial crisis may reveal early signs
of financial turmoil across financial markets. Such information may provide warnings to investors and shipping company managers
who formulate hedging strategies to reduce market risk. Third, by detecting the direction of return and volatility spillovers, shipping
company managers can monitor a particular financial market as a tool to predict the rise and fall of other financial markets. For
example, shipping company managers can look for alternative sources of funding if they expect the stock market to decline. Overall,
knowledge of return and volatility spillover across freight, stock, and currency markets benefits maritime market investors and
shipping company managers around the world in hedging their investments and improving corporate finance by avoiding un-
predictable market disturbances.
Researchers have devoted their studies mainly to the volatility of shipping freight rates among shipping market segments and sub-
segments (Kavussanos, 1996, 1997, 2003; Alizadeh, 2001; Chen et al., 2010; Drobetz et al., 2010). However, most studies measured
the contemporaneous effect of freight rates among different types of vessels. Furthermore, insufficient information is found regarding
lagged volatility or the co-volatility effect of the freight market on other markets. This paper not only measures the lagged effect of
the BDI on other financial markets but also challenges the general belief that volatility spillover exists because all financial markets
experiencing the same economic cycles should move together. Therefore, we develop a model that incorporates lagged BDI and
current financial market indices.
The empirical findings of this study are summarized as follows. First, the BDI had an insignificant volatility spillover effect on
ADJGS, DXY, and GSCI during the whole sample period of October 1, 2007 to October 31, 2018. However, the BDI had a significant
impact on ADJGS, DXY, and GSCI and their covariance during the first sample period (October 1, 2007 to December 2, 2009). The
BDI affected the DXY during the third period (March 27, 2014 to July 10, 2014) and GSCI during the fourth period (July 11, 2014 to
October 31, 2018) when the BDI and commodity prices both slumped dramatically. Overall, the BDI does not serve as a significant
long-term indicator but rather as a short-term signal, especially during financial crises.
This study contributes to the extant literature in the following ways. First, it measures intermarket relationships by incorporating
the stock, currency, and commodities futures markets into the freight market as represented by the BDI. In addition, it examines the
existence and direction of both return and volatility spillovers. Second, it uses the stock prices of 11 dry bulk companies listed on the
DJGS instead of a general index such as the Dow Jones Industrial Average (DJIA) or the Standard and Poor’s 500 (S&P 500). Thus, the
outcome reveals the distinct behavior of the dry bulk shipping market. Third, this study uses an 11-year dataset that covers both
financial and non-financial crisis periods. In this way, insights can be obtained as to whether the impact of the BDI on other financial
markets appears persistently or only during financial crises. Fourth, this paper adopts the tri-variate VAR-BEKK-GARCH-X model by
Engle and Kroner (1995) that incorporates three dependent variables. This model allows the use of lagged BDI as an exogenous factor
to capture its effect on three other markets during the current period.
2. Literature review and hypotheses
The BDI, launched in January 1985, is reported by the London-based Baltic Exchange. With daily reports of charts from London
shipbrokers, the BDI is calculated based on the average charter rates of 23 routes covering the full range of ship sizes (Alizadeh,
2013). The BDI was computed as an equally-weighted average of four sub-indices (the Baltic Capesize (BCI), Panamax (BPI), Su-
pramax (BSI), and Handysize Index (BHSI)), which, before March 2018, were separated based on the size of the dry bulk vessels.
Beginning on March 1, 2018, the BDI was re-weighted as BCI (40%), BPI (30%), and BSI (30%), and it excluded the BHSI timecharter
average. External researchers frequently use a different weighting system: BCI (40%), BPI (25%), BSI (25%), and BHSI (10%) based
on the contribution of each vessel type. As the components of BDI are spread over different sizes, investors follow the aggregate index
rather than individual shipping indices.
266
According to Stopford’s (2009) shipping market model, the key determinants of demand in the shipping market are the global
economy and the seaborne commodity trades. The demand for shipping services is affected by macroeconomic factors such as gross
domestic product as well as inflation, interest, and exchange rates. Freight market supply is mainly determined by the size of the
world fleet, fleet productivity, and freight rates. Similarly, some of these macroeconomic factors drive other financial markets, such
as the stock, currency, and commodities markets.
This analysis is based on the theory of rational expectations, adaptive expectations, and signal theory. Keynes (1937) first dis-
cussed people’s expectations about the future, known as waves of optimism and pessimism, which are critical in determining the
business cycle. Muth (1961) proposed the theory of rational expectations, which describes ways in which people’s expectations partly
decide the outcome of events in various situations. Lucas (1972) further developed the hypothesis of adaptive expectations. This
theory of rational expectations along with the adaptive expectations hypothesis suggest that individuals’ current expectations re-
garding the economy can influence the state of the economy in the future (Savin, 1987). Therefore, people’s rational expectations can
be used to predict the future (Chow, 1991).
Signal theory (Spence, 1973) states that one party credibly conveys information about itself to another party. Koskinen and
Hilmola (2005) first highlighted the fact that the BDI may be used in a competitive economy to predict changes in stock exchanges
and economic activities. Other researchers also regard the BDI, which reflects demand for raw materials, as a signal of global
industrial production (Mitchell et al., 2005; Kilian, 2009; Fan and Xu, 2011; Coleman, 2012).
Demand for seaborne transportation and shipping services leads industrial production because the commodities transported by
vessels whose freight rates affect the shipping freight index are mainly raw materials (Bildirici et al. 2015; Stopford, 2009). Therefore,
changes in the shipping freight index and its expected value can signal changes in estimated industrial production, interest rates, and
exchange rates. Similarly, Kilian (2009) developed an index to measure economic activities with dry-cargo, single-voyage, and ocean-
shipping rates to capture changes in demand for industrial commodities that influence global stock markets.
Cobweb theory, proposed by Mordecai (1938), has been used to describe dry bulk freight rates. The supply of dry bulk vessels is
inelastic because it is extremely costly to build and supply a ship to the market, a process that normally takes approximately two
years. Therefore, dry bulk carriers cannot immediately respond to changes in demand. Since the number of vessels available in the
market cannot be changed easily, freight rates fluctuate wildly to reflect current market demand immediately.
Furthermore, empirical evidence supports the theory of rational expectation and signal theory. According to Jeff deGraaf,
chairman and head technical analyst at global research company Renaissance Macro (RenMac), BDI often leads the MSCI World Index
by one year, and it precedes midcap stock performance across 23 developed markets by approximately two months (Watts, 2017).
The relationship between commodities markets, proxied by the Standard and Poor’s Goldman Sachs Commodity Index (S&P GSCI)
and equity markets is inconsistent. Jensen et al. (2000) argue that shifts in aggregate demand and supply influence commodities
demand, commodities prices, and firm profits. Hence, changes in commodities prices, especially commodities heavily used in in-
dustrial production shipped via dry bulk vessels, are likely to provide timely information about future economic conditions, which are
related to stock returns (Grahama et al., 2016; Silvennoinen and Thorp, 2013). Jorden et al. (2016) provide empirical evidence that
commodities returns influence stock returns. However, other researchers hold differing opinions. For instance, Delatte and Lopez
(2013) used a copula approach to investigate the conditional dependence structure between commodities and equity markets and
found that the dependence structure is time-varying.
Prior researchers found a relationship between the equity and currency markets based on the notion that changes in equities
reflect global economic activities, including the currency market (Mensi et al., 2013; Skiadopoulos, 2013). Mo et al. (2017) revealed
that the U.S. dollar is negatively related to commodities volatility. Similarly, spillover effects were discovered between the com-
modities and currency markets (Antonakakis and Kizys, 2015; Griffin and Stulz, 2001; Smith, 1992).
Based on the above literature, we developed two hypotheses:
H1: There exists a return spillover effect among ADJGS, DXY, and GSCI.
H2: There exists a volatility spillover effect among ADJGS, DXY, and GSCI.
Tsouknidis (2016) examined volatility spillovers across and within intra-industrial segments of shipping freight markets. The
results revealed that large volatility spillovers across shipping freight markets became more distinct during and after the global
financial crisis in 2008. In addition, smaller vessels transmit volatility to larger vessels within the dry bulk segment. Moreover, large
volatility spillovers were detected between the dry bulk and tanker sub-segments for short periods. However, few articles were found
discussing the volatilities of the shipping freight market and their influence on other financial markets.
A few scholars have studied the relationship between international shipping freight rates and the stock market. For example,
Alizadeh and Muradoglu (2014) claim that the shipping sector indices can significantly explain the returns and volatility of stock
market indices. These authors discovered that the connection and spillover effects between DJIA returns and dry bulk shipping rates
strengthened during periods of financial turmoil. However, they hypothesize that information that originates in one asset market,
such as the freight market, reaches investors in another market, such as the stock market, with a time lag.
In addition, Giannarakis et al. (2017) investigated the effect of the BDI as a leading economic indicator on the returns of a socially
responsible stock index, gold commodities prices, and oil prices in developing future economic expectations. The finding that the BDI
positively influences the Dow Jones Sustainability Index World (DJSI World) implies that higher shipping charges increase stock
returns. Despite such co-movement, investors across regions are slow in responding to changes in shipping freight rates and their
impact on international stock markets across industries and regions (Alizadeh and Muradoglu, 2014; Erdogan et al., 2013).
Regarding market-to-market spillover, prior research indicates dynamic correlations between equity and currency markets sub-
sequent to the collapse of Lehman Brothers (Dua and Tuteja, 2016; Karfakis and Panagiotidis, 2015). Lopez (2014) found a volatility
contagion across commodities, equity, foreign exchange, and Treasury bond markets during and after the peak of financial crisis
267
Table 1
Time periods of the whole sample and subsamples using the test of structural break proposed by Bai and Perron (2003; ε = 0.05).
Sample Time period Observations Major event
Whole sample October 1, 2007 to October 2,894

31, 2018
1st subsample October 1, 2007 to 568 The global financial tsunami began with the U.S. subprime crisis.
December 2, 2009 The US government implemented the first round of quantitative easing (QE1) from March
2009.
In December 2009, the European debt Crisis erupted after the main credit rating agencies
downgraded the Greek government's bonds. [structural change]
2nd subsample December 3, 2009, to March 603 On March 9, 2012, the Greek government defaulted on approximately $265 billion of its
26, 2012 bonded debt, which is the largest sovereign default in recorded history. [structural change]
3rd subsample March 27, 2012, to July 10, 698 Crude oil prices plunged from $100 to $60 per barrel from June 2014 to December 2014.
2014 [structural change]
4th subsample July 11, 2014, to October 1,024 China’s economic slowdown triggered its stock market crash in 2015, which adversely affected
31, 2018 global stock markets.
The U.K. government held the Brexit referendum on June 23, 2016, and officially launched
Brexit on March 29, 2017.
Note: Structural break refers to structural changes in volatility series derived from a GARCH (1,1) process. ε = 0.05 denotes the trimming parameter,
where ε = h/T. T denotes the sample size, and h denotes the minimum permissible length of a segment. The minimized Schwarz and LWZ values,
together with supF(i + 1|i) test statistics, were utilized to determine the break dates.
periods. However, literature covering any volatility spillover between the shipping sector and equity markets is scarce.
Moreover, Grahama et al. (2016), based on data between 1997 and 2013, found that the S&P GSCI and the BDI had varying results
on equity market returns, which partially reflects global economic activity. Although these authors found that the equity market is
negatively affected by the S&P GSCI and the BDI, equity markets outside the U.S. are not significantly affected by the global com-
modities market or the BDI.
Based on the above literature, we developed the following hypotheses:
H3: As an exogenous variable, lagged BDI return volatility has an impact on the current volatility (variance) or co-volatility
(covariance) of/between ADJGS, DXY, and GSCI.
H4: The BDI increases its impact on the volatility or co-volatility of ADJGS, DXY, and GSCI over time.
3. Data description
We collected data comprised of the closing stock prices of 11 bulk shipping companies and financial market indices from October
1, 2007 to October 31, 2018. We obtained 2,894 observations from the Financial Markets Index of the Bloomberg database, Stock-ai,
Reuters, and Yahoo Finance websites. We separated the dataset into four time periods based on structural breaks. Vivian and Wohar
(2012) detect structural breaks in the volatility series of spot returns from January 1985 to July 2010 and indicate the persistence of
volatility for many commodity returns even after structural breaks. In fact, changes in the Generalized Autoregressive Conditional
Heteroskedasticity (GARCH) component of the model establish the parameterization of time-varying moments as new information to
the market.
For our study, structure breaks refer to structural changes in the volatility series derived from a GARCH (1,1) process (Bai and
Perron, 2003; Vivian and Wohar, 2012). We scrutinized the volatilities of DJGS, DXY, and GSCI via the GARCH model to identify
breakpoints via the GARCH model. Thus, we obtained four time periods with a minimum of 500 historical data points in each, and we
identified major financial events during each period. Table 1 lists the time period of the whole sample and for each subsample.
4. Model
4.1. Definition of variables
We first selected four financial markets (spot freight, equity, currency, and commodities futures) to detect the existence and
direction of market volatility spillovers. Then we decided on an index to represent each market.
For the spot freight market, we selected the BDI. Valemax vessels or very large ore carriers (VLOC), which are the largest dry bulk
carriers, transport mostly coal and iron ore. VLOC was developed in 2015 with the rise in China’s demand for large quantities of coal
and ores via cost-efficient sea transport. Since then, VOLC vessels have gained increasing importance in the shipping sector (Marine
Insight, 201611).
For this research, then, we adjusted the BDI by incorporating its four sub-indices, namely, BCI, BPI, BSI, and BHSI together with
VLOC. We established the weights of the BDI as BCI 30%, BPI 25%, BSI 25%, BHSI 10%, and VLOC 10% (Baltic Exchange, 2018),
which is referred to as adjusted BDI. Data are collected from the current BDI to obtain index points for each of the sub-indices. In the
1
The VLOC data were collected from January 1, 2014, and the base period (=1,000) was set to January 1, 2014.
268
Table 2
Adjusted BDI, sub-indices, and weights.
Index Code Deadweight (tons) Weight
Baltic Dry Index BDI 100%

Capesize BCI 100,000+ 30%
Panamax BPI 60,000–80,000 25%
Supramax BSI 45,000–59,000 25%
Handysize BHSI 15,000–35,000 10%
Valemax VLOC 380,000–400,000+ 10%
Table 3
Financial market indices and their codes.
Financial market Index Code
Spot freight market Baltic Dry Index BDI

Equity market Adjusted Dow Jones Global Shipping Index ADJGS
Currency market U.S. Dollar Index DXY
Commodity futures market S&P Goldman Sachs Commodity Index GSCI
case of missing values due to holidays, the index point of the previous day is used. The adjusted BDI with five sub-indices is used in
this study. Table 2 presents the BDI, its sub-indices, and their weights.
In the equity market, we chose DJGS as the variable. DJGS measures the performance of 25 high-yield, liquid shipping companies.
Andriosopoulos et al. (2013) tracked the market capitalization of the global shipping industry to provide a low-risk, high-return
investment. For this study, we adjusted the DJGS index to include only dry bulk shipping companies. We first removed 14 non-dry
bulk companies such as tankers and container companies from the 25 shipping companies. Then we collected the closing stock prices
of the remaining 11 dry bulk shipping companies from October 1, 2007 to October 31, 2018. On a value-weighted basis, we compiled
an adjusted DJGS index consisting of 11 dry bulk companies from October 1, 2007 to October 31, 2018. The names of the 11 dry bulk
shipping companies included in our adjusted DJGS are available in Appendix A.
For the currency market, we used DXY, which is a weighted geometric mean of the value of the U.S. dollar relative to a basket of
six currencies: Euro (EUR) 57.6%, Japanese yen (JPY) 13.6%, British pound (GBP) 11.9%, Swedish krona (SEK) 4.2%, and Swiss franc
(CHF) 3.6%.
We selected GSCI for the commodities futures market. In 1991, the Goldman Sachs Group, Inc. developed the GSCI as a means of
investment in global commodities markets. In 2007, Standard & Poor’s acquired the index and renamed it S&P GSCI, and it has
become a leading measure of general price movements and inflation in the world economy. GSCI contains 24 exchange-traded futures
contracts, of which six are in the energy sector. This index includes the most liquid commodities futures and provides diversification
with low correlation to other asset classes. Table 3 lists the four financial markets along with their respective indices and codes used
in this study.
Fig. 1 shows the historical trends of the BDI, ADJGS, DXY, and GSCI from October 1, 2007 to October 31, 2018, with their
fluctuations reflecting the impact of the global economy on each specific market. Notice, in particular, that commodities prices move
in synchrony with the business cycle over time. Fig. 2 displays logarithmic returns of the BDI, ADJGS, DXY, and GSCI with a
pronounced pattern of volatility clustering that serves as the basis of the GARCH-type model for this study.
4.2. BEKK–GARCH model
We estimated all parameters of the tri-variate VAR-BEKK GARCH-X model as proposed by Engle and Kroner (1995) through quasi-
maximum likelihood (QML). This model allows the covariance matrix to be positive definite. In addition, this model ensures that the
conditional variance and covariance matrices are not subject to a delay effect of the parameters or to cross-interference among the
variables. In addition, robust standard errors are reported for the empirical results. According to the Bayesian information criterion
(BIC), the optimal lag length for the whole and the subsamples is one. The tri-variate VAR model is written as:
RGSCI , t = a1 + 1 RGSCI , t 1 + 1 RDXY , t 1 + 1 RADJGS, t 1 + 1, t (1)
RDXY , t 1 = a2 + 2 RGSCI , t 1 + 2 RDXY , t 1 + 2 RADJGS, t 1 + 2, t (2)
RADJGS, t 1 = a3 + 3 RGSCI , t 1 + 3 RDXY , t 1 + 3 RADJGS, t 1 + 3, t (3)
where t = ( 1, t 2, t 3, t ) N (0, Ht ) . In Eqs. (1)–(3), the variablesRGSCI , t , RDXY , t , and RADJGS, t denote the returns of the commodities market
'
represented by GSCI, the U.S. Dollar Index indicated by DXY, and the aggregate values of 11 dry bulk shipping company stocks
selected from the DJGS Index, respectively. The value of the adjusted DJGS Index with 11 dry bulk shipping companies is calculated
on a value-weighted basis. If the parameters, 1 and 1 are significant in Eq. (1), it indicates a cross-market mean spillover. A similar
explanation also goes for Eqs. (2) and (3). The conditional variance and covariance of BEKK-GARCH-X are expressed as follows:
269
Fig. 1. Trends of the BDI, DJGS, GSCI, and DXY from 2008 to 2018.
DL_BDI DL_DJGS
15 15
10 10
5 5
0 0
-5 -5
-10 -10
-15 -15
2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018
DL_DXY DL_GSCI
3 8
2
4
1
0 0
-1 -4
-2
-8
-3
-4 -12
2008 2010 2012 2014 2016 2018 2008 2010 2012 2014 2016 2018
Fig. 2. First differences of logged BDI, DJGS, DXY, and GSCI from October 1, 2007 to October 31, 2018. (DL_ denotes difference).
270
Ht = CC ' + A (4)
' '
t 1 t 1A + BHt 1 B ' + EE 'xt2
C11 0 0 E11 0 0 A11 A12 A13 B11 B12 B13 1, t 1

C = C21 C22 0 , B = E21 E22 0 A = A21 A22 A23 , B = B21 B22 B23 , t 1 = 2, t 1 , andHt 1
C31 C32 C33 E31 E32 E33 A31 A32 A33 B31 B32 B33 3, t 1
h11, t 1 h12, t 1 h13, t 1

= h21, t 1 h22, t 1 h23, t 1
h31, t 1 h32, t 1 h33, t 1
The tri-variate BEKK-GARCH-X model is used to detect the existence of volatility spillover effects of the BDI on the GSCI, DXY, and
ADJGS markets. In other words, we use lagged BDI as the exogenous variable in Eq. (4) to examine whether the volatility of one
market or the co-volatility between markets could be influenced by the information content of the BDI (proxied by the squared x). For
example, if the parameter E11 2
is positive and significant, then the BDI has a positive effect on the next-period volatility of commodities
market returns. Similarly, if the parameters (E21 2
+ E222
) are found to be statistically significant, then a cross-market spillover from the
BDI to DXY exists.2
In the VAR (1) model, we used the lagged returns of ADJGS, DXY, and GSCI as exogenous factors to detect the mean spillover
effect within the three non-BDI market indices. Subsequently, we used BDI return as an exogenous variable to examine its spillover
effect on the volatility (co-volatility) of (among) ADJGS, DYX, and GSCI. We further conducted the Wald test of exogeneity to verify
whether there is a spillover effect in the conditional mean equations, and to identify the existence of the BDI’s spillover effect by t-
test.
5. Empirical results
In this study, all returns are in the form of natural log multiplied by 100. The empirical results regarding descriptive statistics, unit
root test, and the tri-variate VAR-BEKK-GARCH-X model are described in the following section.
5.1. Descriptive statistics and unit root test
We first obtained the data’s descriptive statistics and then performed a unit root test to ensure that the data were stationary.
Table 4 presents the descriptive statistics of all financial market indices. The results show that all financial markets produce negative
returns except DXY. In addition, the BDI experienced the highest volatility among all of the markets.
We conducted two unit-root tests for each market. First, we conducted a PP test with the null hypothesis of having a unit root.
Second, we performed a KPSS pass with the null hypothesis of no unit root. The p-values of both unit root tests confirm the presence
of a unit root for log stock prices and stationarity for log returns as indicated in Table 5. Furthermore, we performed ARCH tests to
confirm unit root existence for each return series.3
5.2. Results of the tri-variate VAR-BEKK-GARCH-X model
The results of the tri-variate VAR-BEKK-GARCH-X model are presented in Tables 6–10. The results of the exogeneity test (Wald
test) and block exclusion tests are provided in Appendices B–F. Table 6 contains the estimated results of the whole sample period.
Tables 7–10 report the results of the first, second, third, and fourth subsample periods, respectively.
Table 7 shows the estimated results of the tri-variate BEKK-GARCH-X model for the first subsample period.
Table 8 exhibits the estimated results of the tri-variate VAR-BEKK-GARCH-X model for the second subsample period.
Table 9 includes the estimated results of the tri-variate BEKK-GARCH-X model for the third subsample period.
Table 10 lists the estimated results of the tri-variate BEKK-GARCH-X model for the fourth subsample period.
The empirical results derived from the tri-variate VAR-BEKK-GARCH-X model to detect BDI spillovers on ADJGS, DXY, and GSCI
can be described from three perspectives: a lagged BDI effect, cross-market spillover, and individual market spillover.
Regarding the effect of lagged BDI, the key finding is that the BDI did not show a significant return or volatility spillover effect on
the sample as a whole. However, the result of the first subsample indicates that the BDI (proxied by its squared values) exerts a
spillover effect on the volatility of the three other markets (ADJGS, DXY, and GSCI) as shown by the significant parameters E(1,1), E
(2,1), E(2,2) and E(3,1). This result is consistent with the literature on the BDI’s role as both an intra-market (e.g., equity markets
across countries) and inter-market (e.g., equity and commodities markets) indicator. In addition, the BDI serves as an exogenous
factor that partially influences co-volatility between DXY and ADJGS, as confirmed by the significant coefficients of E(2,1) and E
(3,1). Moreover, the BDI has a net spillover effect on DXY as demonstrated by the significant relationship between the two variables.4
2
Other similar analyses are also applied according to the parameter matrix of EE ' .
3
The results of ARCH effect are available upon request.
4
The parameters of any two markets are statistically significant based on the t-test, whereas the effect on co-volatility between the DXY and DJGS
markets is at a significance level of 0.0469. The net effect of spillover to DXY is proved by the sum of squared E(2,1) and squared E(22) with a
significance level of 0.0048. These statistical results are available upon request.
271
Table 4
Descriptive statistics of all financial market indices.
Index No. of observations Mean Standard deviation Min Max Skewness Excess kurtosis
PBDI , t 2894 7.3148 0.7387 5.7453 9.3753 0.9490 0.7064

PGSCI ,t 2894 6.2322 0.2577 5.6051 6.7916 −0.2399 −1.1242
PDXY , t 2894 4.4421 0.0967 4.2673 4.6376 0.3048 −1.2195
PADJGS, t 2894 6.6496 0.3686 5.9827 7.7563 0.6361 0.2886
RBDI , t 2893 −0.0073 0.3546 −1.6105 1.9199 0.3024 2.6055
RGSCI , t 2893 −0.0010 0.2359 −1.3498 1.2344 −0.2199 3.9818
RDXY , t 2893 0.0017 0.1147 −0.6889 0.5785 −0.1142 2.26895
RADJGS ,t 2893 −0.0083 0.2565 −1.9175 2.2498 −0.3516 10.8474
Note: Pt and Rt with the abbreviation of each market denote the log index price level and log return (%) for BDI, GSCI, DXY, and ADJGS, re-
spectively.
Table 5
Results of unit root tests.
Unit root test/variable PBDI , t / RBDI , t PGSCI ,t /RGSCI , t PDXY , t /RDXY , t PADJGS, t /RADJGS, t
PP −2.5493/−23.8213 −1.4760/−56.1875 −1.2354/−53.0250 −2.1987/−42.8379

KPSS 26.2664/0.1900 18.3579/0.0939 41.5015/0.0547 34.9783/0.0801
Note: The unit root test reports the t-value. In the PP test, the significance levels (critical values) are 1% (−3.4356), 5% (−2.8630), and 10%
(−2.5676), respectively. In the KPSS test, the significance levels (critical values) are 1% (0.7390), 5% (0.4630), and 10% (0.3470), respectively.
The second subsample did not show any significant correlation among BDI, DXY, ADJGS, and GSCI. This is contrary to the
literature that BDI serves as an economic indicator.
During the third period, the BDI produced a significant spillover effect on DXY as indicated by parameter E(2,1). In contrast, the
BDI had an insignificant impact on ADJGS and GSCI.
During the fourth period, the BDI produced a significant spillover effect on GSCI, as indicated by parameter E(1,1). In contrast, the
BDI had an insignificant spillover effect on DXY and ADJGS. The outcome of the third and fourth subsamples was rarely discussed in
earlier literature, especially in the field of maritime finance.
Second, cross-market return and volatility spillover effect were identified among the three non-BDI markets (ADJGS, DXY, and
GSCI). With respect to return spillover, GSCI and ADJGS were the recipients of cross-market return spillovers during the whole
sample as well as the first subsample period (October 1, 2007 to December 2, 2009). However, in the second, third, and fourth
subsample periods, very few cross-market return spillovers were found.
Cross-market volatility spillovers were found among ADJGS, DXY, and GSCI. During the whole sample period, GSCI and ADJGS
received volatility spillover from each other. GSCI and DXY each received volatility spillover from the other two non-BDI markets. In
the first and third subsample periods, ADJGS, DXY, and GSCI had volatility spillovers among each other. This result indicates that the
three non-BDI markets, namely ADJGS, DXY, and GSCI, are characterized by stronger correlations in terms of volatility relative to
return spillover, suggesting that information content is carried mainly through volatility.
Third, we examined each market’s own spillover effects from its own shocks and volatilities as signified by coefficients of A(1, 1),
A(2,2), A(3,3), B(1,1), B(2,2), and B(3,3) in ADJGS, DXY, and GSCI over the whole sample period. In particular, RADJGS had its own
spillover effects from both shocks and volatilities during all except the third subsample period (March 27, 2014 to July 10, 2014). In
contrast, GSCI had spillover effects only during the third and fourth subsample periods as expressed by A(1, 1) in the third subsample
period and B(1, 1) in the fourth sample period.
Fourth and finally, the results of the diagonal test confirm that the tri-variate VAR-BEKK-GARCH-X model used in this study is
more effective than a diagonal BEKK model. Furthermore, as shown in Appendix B to F, most of the diagnostic results indicate that
the empirical models are well-suited for the data characteristics.
Based on the results shown in Tables 6–10, we can determine whether our hypotheses are validated. The hypotheses and vali-
dations are presented in Table 11.
6. Discussion
The results of this paper can be compared with general research on freight rate volatility spillovers. For example, a great deal of
literature is devoted to volatility spillover among different shipping freight rate segments (Kavussanos, 1997, 2003; Alizadeh, 2001;
Chen et al., 2010). This study expands on that concept and investigates intermarket correlations among spot freight rates represented
by the BDI, ADJGS, DXY, and GSCI. Based on the results of this study, spot freight rates not only produce spillover effects among
intra-market shipping segments as shown in the previous literature but also exhibit inter-market effects. In addition, although prior
studies probed the endogenous volatility spillover of freight rates (Dai et al., 2015; Tsouknidis, 2016), we discovered that the BDI
creates exogenous volatility spillover effects on ADJGS, DXY, and GSCI during financial crises.
272
Table 6
Estimated results of the tri-variate VAR-BEKK-GARCH-X model for the entire sample period.
Mean model Variable/Parameter Coefficient Std error T-stat P-value
RGSCI , t RGSCI , t 1 −0.0328 0.0173 −1.8901 0.0587

RDXY , t 1 −0.0095 0.0328 −0.2902 0.7717
RADJGS ,t 1 0.0377 0.0120 3.1503 0.0016
Constant 0.0020 0.0032 0.6119 0.5406
RDXY , t 1 RGSCI , t 1 −0.0048 0.0091 −0.5208 0.6025
RDXY , t 1 −0.0130 0.0175 −0.7410 0.4587
RDAJGS , t 1 0.0010 0.0072 0.1315 0.8954
Constant 0.0024 0.0018 1.3351 0.1818
RADJGS ,t 1 RGSCI , t 1 0.1364 0.0205 6.6461 0.0000
RDXY , t 1 −0.0857 0.0398 −2.1515 0.0314
RADJGS ,t 1 0.0886 0.0190 4.6749 0.0000
Constant −0.0115 0.0039 −2.9345 0.0033
C(1,1) −0.0103 0.0042 −2.4594 0.0139
C(2,1) −0.0032 0.0032 −0.9948 0.3198
C(2,2) −0.0039 0.0049 −0.7884 0.4305
C(3,1) −0.0189 0.0206 −0.9190 0.3581
C(3,2) 0.0076 0.0508 0.1489 0.8816
C(3,3) 0.0241 0.0191 1.26345 0.2064
A(1,1) 0.2151 0.0203 10.5728 0.0000
A(1,2) −0.0076 0.0156 −0.4873 0.6261
A(1,3) 0.0613 0.0200 3.0578 0.0022
A(2,1) 0.0986 0.0032 2.9690 0.0030
A(2,2) 0.1516 0.0133 11.3601 0.0000
A(2,3) −0.0045 0.0339 −0.1334 0.8939
A(3,1) 0.0133 0.0217 0.6110 0.5412
A(3,2) 0.0070 0.0130 0.5407 0.5887
A(3,3) 0.1762 0.0610 2.8872 0.0039
B(1,1) 0.9763 0.0045 217.0642 0.0000
B(1,2) −0.0007 0.0033 −0.2013 0.8405
B(1,3) −0.0110 0.0055 −2.0042 0.0450
B(2,1) −0.0142 0.0075 −1.8763 0.0606
B(2,2) 0.9857 0.0033 297.6740 0.0000
B(2,3) −0.0110 0.0071 −1.5577 0.1193
B(3,1) −0.0042 0.0059 −0.7003 0.4838
B(3,2) −0.0002 0.0047 −0.0441 0.9648
B(3,3) 0.9714 0.0185 52.3562 0.0000
E(1,1) 0.0066 0.0097 0.6792 0.4970
E(2,1) −0.0041 0.0233 −0.1761 0.8602
E(2,2) −0.0102 0.0093 −1.0989 0.2718
E(3,1) −0.0666 0.0475 −1.4034 0.1605
E(3,2) −0.0043 0.0056 −0.0264 0.9790
E(3,3) −0.0000 0.1548 −0.0001 0.9999
Note: Rt with the abbreviation of each market denotes the returns of GSCI, DXY, and ADJGS. Robust standard errors are reported.
H1 and H2 examined and compared the return and volatility spillover effect among the three non-BDI markets (ADJGS, DXY, and
GSCI). The return spillover effect was observed during the whole sample and first subsample periods. The volatility spillover effect
was seen during the whole, first, and third subsample periods. Although both return and volatility spillovers exist among the
commodities, U.S. currency, and equity markets, volatility spillover effect is more pronounced in these markets than return spillover.
H3 examined the exogenous effect of the BDI on ADJGS, DXY, and GSCI, and found that the effect of the BDI is time-varying. The
BDI did not show a significant return or volatility spillover effect for the whole sample period. However, the BDI affected ADJGS,
DXY, and GSCI and their co-variance during the first subsample period from October 1, 2007 to October 31, 2018, which is consistent
with both the theory of rational expectations and signal theory. We observed that the abrupt decline of the BDI reflected a downturn
of the U.S. economy stemming from the U.S. subprime mortgage crisis. Investors withdrew their investments from U.S. markets and
turned to other markets, which probably caused the U.S. dollar and equity markets to plunge as well. Moreover, the BDI served as a
signal when financial turmoil (e.g., the subprime crisis) occurred in the U.S. because the BDI affects the commodities, U.S. dollar, and
equity markets in the U.S.
H4 tested the increasing impact of the BDI. Although the BDI had significant effect on the U.S. subprime crisis, the BDI lessened its
impact during the second subsample period (December 3, 2009 to March 26, 2012), the BDI had insignificant influence on GSCI, DXY,
and ADJGS. This result could be attributed to the fact that the financial crisis of this period stemmed from the Greek government is
less affected by the volatility of BDI.
During the third subsample period, the BDI had a significant effect on DXY. The sharp drop in the price of oil in 2014 probably
signaled lower demand for production and commodities, which led to the decline of both the BDI and currency because most
commodities are valued in U.S. dollars. In addition, DXY rose with the BDI in the third period when the U.S. economy recovered
273
Table 7
Estimated results of the tri-variate VAR-BEKK-GARCH-X model for the first subsample period (October 1, 2007 to December 2, 2009).
Mean model Variable/parameter Coefficient Std error T-stat p-value
RGSCI , t RGSCI , t 1 −0.0575 0.0498 −1.1554 0.2479

RDXY , t 1 0.0392 0.0942 0.4158 0.6775
RADJGS ,t 1 0.1102 0.0315 3.4989 0.0005
Constant 0.0187 0.0111 1.6909 0.0909
RDXY , t 1 RGSCI , t 1 −0.0135 0.0164 −0.8216 0.4113
RDXY , t 1 −0.0038 0.0405 −0.0931 0.9258
RADJGS ,t 1 −0.0246 0.0170 −1.4491 0.1473
Constant −0.0073 0.0047 −1.5498 0.1212
RADJGS ,t 1 RGSCI , t 1 0.1132 0.0448 2.5278 0.0115
RDXY , t 1 −0.1204 0.0951 −1.2659 0.2055
RADJGS ,t 1 0.1084 0.0340 3.1836 0.0015
Constant −0.0130 0.0133 −0.9775 0.3283
C(1,1) 0.0229 0.0137 1.68044 0.0929
C(2,1) −0.0188 0.0186 −1.0071 0.3139
C(2,2) 0.0220 0.0139 1.5791 0.1143
C(3,1) −0.0332 0.0247 −1.3425 0.1794
C(3,2) −0.0311 0.0257 −1.2105 0.2261
C(3,3) 0.0000 0.0149 0.0004 0.9997
A(1,1) 0.0577 0.0673 0.8576 0.3911
A(1,2) 0.1279 0.0335 3.8157 0.0001
A(1,3) −0.1016 0.0642 −1.5815 0.1138
A(2,1) 0.3425 0.1133 3.0226 0.0025
A(2,2) 0.0830 0.0595 1.3942 0.1633
A(2,3) 0.2889 0.0906 3.1883 0.0014
A(3,1) −0.0108 0.0356 −0.3030 0.7618
A(3,2) −0.0081 0.0226 −0.3583 0.7201
A(3,3) −0.1581 0.0339 −4.6705 0.0000
B(1,1) 0.9411 0.0274 34.3127 0.0000
B(1,2) 0.0170 0.0221 0.7682 0.4424
B(1,3) −0.0278 0.0179 −1.5527 0.1205
B(2,1) −0.1760 0.1207 −1.4587 0.1446
B(2,2) 0.9399 0.0356 26.4309 0.0000
B(2,3) 0.0182 0.0779 0.2342 0.8148
B(3,1) 0.0200 0.0191 1.0487 0.2943
B(3,2) −0.0036 0.0209 −0.1736 0.8622
B(3,3) 0.9577 0.0140 68.2308 0.0000
E(1,1) 0.0718 0.0418 1.7186 0.0857
E(2,1) −0.0707 0.0206 −3.4347 0.0006
E(2,2) −0.0422 0.0257 −1.6451 0.0999
E(3,1) 0.0755 0.0392 1.9278 0.0539
E(3,2) −0.0511 0.0435 −1.1742 0.2403
E(3,3) −0.0000 0.0400 −0.0004 0.9997
Note: Rt denotes the return of GSCI, DXY, and ADJGS. Robust standard errors are reported.
substantially perhaps due to the success of QE policies. This outcome is consistent with both the theory of rational expectations and
signal theory, which hold that the BDI serves as an economic indicator.
During the fourth subsample period, the BDI had a significant effect on GSCI. However, the BDI did not have an impact on ADJGS,
which is consistent with Delatte’s and Lopez’s (2013) findings that the relationship between commodities and the equity market is
time-varying. Rapidly growing emerging markets such as in China created unprecedented high demand for oil in the first decade after
2000; however, China lowered its demand for oil in 2014 due to an economic slowdown. As the world’s largest country for the import
of oil and raw materials (i.e., iron ore and coal), China’s lower demand for oil and raw materials consequently had an adverse impact
on the commodities market. Thus, commodities prices declined drastically with increased price volatility (Li et al., 2019). The BDI
exerted an increasing influence on the commodities market because of the importance of China in the commodities market.
It is interesting to note that during 2018, a trade war broke out between China and the U.S., causing a reduction in the economic
growth of both countries. The BDI declined further, causing the commodities market to fall. Currently, the most widely used indicator
for China’s economy is the Li Keqiang index, which was created by The Economist to measure China’s economic strength using three
factors that reflect that country’s domestic economic activities: railway cargo, electricity consumption, and bank loans. In contrast,
the BDI can be used as an alternative economic indicator because it may carry more information concerning China’s economic
activities from an international trade perspective.
The above results suggest that the BDI has a significant effect on the commodities and U.S. currency markets when a financial
crisis occurs in the U.S. or an emerging country such as China. In addition, the BDI is not a significant indicator over the long run. It is
a short-run indicator, especially in times of financial crisis. Furthermore, the BDI’s effect in driving the other three financial markets
(ADJGS, DXY, and GSCI) is most pronounced when financial crises occur in the U.S. The BDI influences DXY and GSCI only when
274
Table 8
Estimated results of the tri-variate VAR-BEKK-GARCH-X model for the second subsample period (December 3, 2009, to March 26, 2012).
Mean model Variable/parameter Coefficient Std error T-stat P-value
RGSCI , t RGSCI , t 1 0.0043 0.1008 0.0431 0.9656

RDXY , t 1 −0.0488 0.0727 −0.6719 0.5016
RADJGS ,t 1 0.0394 0.0494 0.7968 0.4256
Constant 0.0123 0.0100 1.2258 0.2203
RDXY , t 1 RGSCI , t 1 0.0164 0.0326 0.5027 0.6152
RDXY , t 1 0.0563 0.0388 1.4489 0.1476
RADJGS ,t 1 −0.0032 0.0234 −0.1355 0.8922
Constant 0.0034 0.0047 0.7361 0.4617
RADJGS ,t 1 RGSCI , t 1 0.1604 0.0648 2.4742 0.0134
RDXY , t 1 −0.3209 0.0733 −4.3779 0.0000
RADJGS ,t 1 0.0118 0.0566 0.2084 0.8350
Constant −0.0141 0.0089 −1.5817 0.1137
C(1,1) 0.0973 0.0325 2.9924 0.0028
C(2,1) −0.0079 0.0242 −0.3281 0.7428
C(2,2) 0.0242 0.0088 2.7324 0.0063
C(3,1) −0.0051 0.0258 −0.1974 0.8435
C(3,2) 0.0908 0.0234 3.8805 0.0001
C(3,3) −0.000 0.0065 −0.0006 0.9996
A(1,1) 0.3320 0.2293 1.4479 0.1476
A(1,2) −0.0817 0.0543 −1.5043 0.1325
A(1,3) −0.0568 0.2006 −0.2830 0.7772
A(2,1) 0.3244 0.2291 1.4163 0.1567
A(2,2) 0.0844 0.0615 1.3740 0.1694
A(2,3) 0.2517 0.2402 1.0478 0.2948
A(3,1) 0.0326 0.2329 0.1401 0.8886
A(3,2) 0.0274 0.0623 0.4403 0.6597
A(3,3) 0.4015 0.1481 2.7114 0.0067
B(1,1) 0.7759 0.1216 6.3829 0.0000
B(1,2) 0.0205 0.0419 0.4900 0.6241
B(1,3) 0.0568 0.1466 0.3877 0.6983
B(2,1) −0.1264 0.3559 −0.3552 0.7224
B(2,2) 0.9680 0.0451 21.4444 0.0000
B(2,3) −0.1889 0.1022 −1.8489 0.0645
B(3,1) 0.0275 0.2502 0.1100 0.9124
B(3,2) −0.0339 0.0467 −0.7264 0.4676
B(3,3) 0.7002 0.2457 2.8494 0.0044
E(1,1) −0.0075 0.0705 −0.1066 0.9151
E(2,1) 0.0044 0.0196 0.2248 0.8221
E(2,2) 0.0000 0.0374 0.00120 0.9990
E(3,1) 0.1809 0.1786 1.01259 0.3113
E(3,2) 0.0019 1.4361 0.0013 0.9989
E(3,3) 0.0002 0.2554 0.0009 0.9993
Note: Rt denotes the return of GSCI, DXY, and ADJGS. Robust standard errors are reported.
emerging markets—especially China, which is the most significant commodities and raw materials importer—experience an eco-
nomic downturn and decrease their demand for industrial production.
Based on the BDI’s propagation of information across markets, the findings of this study have several important implications for
private and institutional investors interested in shipping company stocks, for managers of shipping companies, and for regulators.
First, investors evaluate risk and returns during the investment-making process. Return spillovers imply that profitability can be
achieved by looking closely at one market together with the performance of other relevant markets. Volatility spillovers signify that
by observing a particular market’s behavior, investors can anticipate risks stemming from other markets. Knowledge of potential
return and volatility spillovers from one financial market to another may lessen investment losses for risk-averse investors (Drobetz
et al., 2010). The direction of return and risk spillovers can be useful for investors when they consider buying, holding, or selling
shipping company stocks. Similarly, this information is useful for shipping company managers in accepting or rejecting vessel-
building plans.
Second, return and volatility spillovers inform market participants of the possible spread of turmoil among financial markets.
Thus, the BDI may serve as a signal of an imminent financial market decline and warn investors and shipping company managers who
formulate hedging strategies to minimize their market risks. Regulators may set policies and regulations to protect the investors and
business entities involved.
Third, this study is particularly useful for maritime investors and shipping company managers who may use the BDI to predict the
rise and fall of the stock prices of dry shipping companies. A fall in the BDI implies that it is the right time to sell shipping company
stocks. Likewise, managers of shipping companies can seek alternative sources of funding if they anticipate stock market weakening.
275
Table 9
Estimated results of the tri-variate VAR-BEKK-GARCH-X model for the third subsample period (March 27, 2014 to July 10, 2014).
Mean model Variable/parameter Coefficient Std Error T-stat p-value
RGSCI , t RGSCI , t 1 −0.0738 0.0652 −1.1312 0.2580

RDXY , t 1 −0.1682 0.0661 −2.5450 0.0109
RADJGS ,t 1 −0.0543 0.0389 −1.3974 0.1623
Constant −0.0246 0.0084 −2.9186 0.0035
RDXY , t 1 RGSCI , t 1 0.0399 0.0279 1.4295 0.1529
RDXY , t 1 −0.0121 0.0470 −0.2574 0.7969
RADJGS ,t 1 0.0237 0.0162 1.4581 0.1448
Constant 0.0054 0.0033 1.6327 0.1025
RADJGS ,t 1 RGSCI , t 1 0.1641 0.0762 2.1532 0.0313
RDXY , t 1 0.0050 0.1481 0.0337 0.9732
RADJGS ,t 1 0.0946 0.0475 1.9939 0.0462
Constant −0.0080 0.0120 −0.6649 0.5061
C(1,1) −0.0435 0.0115 −3.7794 0.0002
C(2,1) −0.0053 0.0084 −0.6259 0.5314
C(2,2) −0.0000 0.0009 −0.0000 0.9999
C(3,1) −0.0612 0.0245 −2.4968 0.0125
C(3,2) 0.0000 0.0082 0.0000 0.9999
C(3,3) 0.0000 0.0287 0.0000 0.9999
A(1,1) 0.4862 0.1553 3.1313 0.0017
A(1,2) 0.0352 0.1105 0.3188 0.7499
A(1,3) 0.0804 0.2190 0.3669 0.7137
A(2,1) 0.1587 0.1668 0.9517 0.3412
A(2,2) −0.1935 0.0424 −4.5665 0.0000
A(2,3) −0.1529 0.3558 −0.4298 0.6674
A(3,1) 0.0994 0.0474 2.0970 0.0360
A(3,2) −0.0228 0.0172 −1.3243 0.1854
A(3,3) −0.0729 0.0925 −0.7879 0.4307
B(1,1) 0.6974 0.0704 9.9042 0.0000
B(1,2) 0.0082 0.0682 0.1207 0.9040
B(1,3) −0.9986 0.2131 −4.6870 0.0000
B(2,1) −0.1878 0.1253 −1.4986 0.1340
B(2,2) 0.9752 0.0383 25.4348 0.0000
B(2,3) −0.5578 0.3822 −1.4594 0.1445
B(3,1) 0.1577 0.0321 4.9117 0.0000
B(3,2) 0.0021 0.0241 0.0875 0.9303
B(3,3) 0.8448 0.0620 13.6189 0.0000
E(1,1) −0.0154 0.0257 −0.5995 0.5488
E (2,1) −0.0149 0.0062 −2.4027 0.0163
E (2,2) 0.0000 0.0090 0.0000 1.0000
E (3,1) −0.0454 0.0338 −1.3423 0.1795
E (3,2) 0.0000 0.0146 0.0000 1.0000
E (3,3) 0.0000 0.0024 0.0000 1.0000
Note: Rt denotes the return of GSCI, RDXY, and RDJGS. Robust standard errors are reported.
7. Conclusion
This paper aimed to investigate the effect of spot freight rates on the price volatility of shipping stocks (ADJGS), the U.S. currency
market (DXY), and the commodity futures market (GSCI) based on 2,894 observations from October 1, 2007 to October 31, 2018.
In conclusion, our analysis produces three findings. First, the effect the BDI is time-varying and present mostly in extreme events
(as opposed to most of the time). Specifically, this study provides novel empirical evidence about the existence and exogenous mean
return spillover effects from the spot freight market (indicated by the BDI) to ADJGS, DXY, and GSCI. The results indicated that the
BDI did not serve as a long-term (over the years) indicator because no significant volatility spillover effect was on ADJGS, DXY, and
GSCI over the whole sample period. However, BDI emerged to be a short-term (three to five years) signal during the first subsample
period (October 1, 2007 to December 2, 2009) with the global financial tsunami stemming from the U.S. subprime crisis as well as
during the third and fourth subsample periods (March 27, 2014 to October 31, 2018) with China’s stock market crash due to its
slowing economy. The BDI drives the movements of the commodities, currency, and equity markets as well as the covariance among
them. This result suggests that the BDI can drive other financial markets when major events occur in the U.S. and in emerging markets
such as China, which has a high demand for raw materials for industrial production. (to be combined with the following section).
Such finding suggests that BDI serves as an indicator in financial turmoil rather than tranquility.
This result leads to the second finding. The three financial markets (equity, currency, and commodities) have both volatility and
return spillovers on one another over a long-term period as evidenced by the whole sample period from 2007 to 2018. It is noticeable
that the volatility spillover among these three financial markets is stronger than the return spillover, suggesting that information is
mainly conveyed through volatility rather than return.
276
Table 10
The estimated results of the tri-variate VAR-BEKK-GARCH-X model for the fourth subsample period (July 11, 2014, to October 31, 2018).
Mean model Variable Coefficient Std error T-stat p-value
RGSCI , t RGSCI , t 1 −0.0528 0.0305 −1.7324 0.0832

RDXY , t 1 −0.0138 0.0589 −0.2345 0.8146
RADJGS ,t 1 0.0275 0.0299 0.9191 0.3581
Constant 0.0042 0.0055 0.7610 0.4466
RDXY , t 1 RGSCI , t 1 −0.0151 0.0133 −1.1377 0.2553
RDXY , t 1 −0.0168 0.0324 −0.5193 0.6035
RADJGS ,t 1 −0.0130 0.0138 −0.9446 0.3449
Constant 0.0012 0.0032 0.3592 0.7194
RADJGS ,t 1 RGSCI , t 1 0.1233 0.0254 4.8480 0.0000
RDXY , t 1 0.1245 0.0515 2.4164 0.0157
RADJGS ,t 1 0.1174 0.0325 3.6130 0.0003
Constant 0.0014 0.0046 0.3095 0.7569
C(1,1) 0.0071 0.0074 0.9512 0.3415
C(2,1) −0.0064 0.0029 −2.1956 0.0281
C(2,2) 0.0000 0.0024 0.0000 1.0000
C(3,1) 0.0391 0.0091 4.3084 0.0000
C(3,2) 0.0000 0.0238 0.0000 1.0000
C(3,3) 0.0000 0.0057 −0.0001 0.9999
A(1,1) 0.1152 0.0315 3.6548 0.0003
A(1,2) −0.0186 0.0132 −1.4143 0.1573
A(1,3) −0.0381 0.0489 −0.7803 0.4352
A(2,1) −0.0237 0.0719 −0.3293 0.7420
A(2,2) 0.0366 0.0250 1.4638 0.1433
A(2,3) −0.0396 0.0746 −0.5300 0.5961
A(3,1) 0.0378 0.0271 1.3922 0.1639
A(3,2) −0.0043 0.0119 −0.3621 0.7173
A(3,3) 0.4017 0.0511 7.8628 0.0000
B(1,1) 0.9904 0.0036 272.8137 0.0000
B(1,2) −0.0007 0.0020 −0.3199 0.7490
B(1,3) −0.0093 0.0087 −1.0740 0.2828
B(2,1) 0.0155 0.0112 1.3834 0.1666
B(2,2) 0.9924 0.0027 362.9963 0.0000
B(2,3) 0.0111 0.0184 0.6040 0.5458
B(3,1) 0.0008 0.0142 0.0571 0.9544
B(3,2) 0.0082 0.0040 2.0610 0.0393
B(3,3) 0.9051 0.0234 38.7013 0.0000
E(1,1) −0.0271 0.0123 −2.2118 0.0270
E(2,1) 0.0115 0.0086 1.3347 0.1820
E(2,2) −0.0113 0.0092 −1.2250 0.2206
E(3,1) −0.0071 0.0099 −0.7095 0.4780
E(3,2) 0.0005 0.0064 0.0800 0.9362
E(3,3) 0.0000 0.0031 −0.0002 0.9998
Note: Rt with the abbreviation of each financial market denotes the return of GSCI, DXY, and ADJGS. Robust standard errors are reported.
Table 11
Results of hypotheses.
Hypothesis Validated
H1: There exists a return spillover effect among ADJGS, DXY, and GSCI. Validated
H2: There exists a volatility spillover effect among ADJGS, DXY, and GSCI. Validated
H3: As an exogenous variable, lagged BDI return volatility has an impact on the Partially validated: (1) BDI has an exogenous effect on current volatility or
current volatility (variance) or co-volatility (covariance) of/between co-volatility of ADJGS, DXY, and GSCI, only during the first subsample
ADJGS, DXY, and GSCI. period. (2) BDI has an exogenous effect on current volatility of DXY, and
GSCI during the third or the fourth subsample period, respectively.
H4: BDI increases its impact on the volatility or co-volatility of ADJGS, DXY, and Validated
GSCI over time. BDI had a significant impact on ADJGS during the first subsample period
(October 1, 2017-September 2, 2009), on DXY during the third subsample
period (March 27, 2014-July 10, 2014), and increasingly on GSCI during
the fourth subsample period (July 11, 2014-October 31, 2018).
Third, the findings of our study highlight the growing impact of BDI after 2014, as evidenced by the stronger co-movement
between the BDI and commodities market due to China’s economic slowdown. It can be inferred that BDI is highly sensitive to the
economic events that occur in China, the world’s largest importer of commodities and raw materials; therefore, BDI is likely to
increase its significance in predicting the movements of financial markets with the rapid rise of China in the world trade. The findings
of this study benefit maritime market investors who intend to use the BDI as a signal to predict shipping stock prices.
277
The contributions of this paper to the literature are fourfold. First, the study examined the existence and direction of intermarket
return volatility spillover effects by incorporating the spot freight, equity, currency, and commodity futures markets. Second, it uses
the stock returns of 11 dry bulk companies listed on the DJGS rather than a general index such as the DJIA or S&P 500, as commonly
found in the existing literature. Thus, the results of this study reflect a more precise relationship between the BDI and the stock
market specific to the dry bulk industry. Third, the study adopts a novel tri-variate VAR-BEKK-GARCH-X model that uses lagged BDI
as an exogenous factor to capture its effects on ADJGS, DXY, and GSCI. We found that the BDI did not significantly impact stock,
currency, or commodities futures prices in the long run, but it did affect these markets in the short run, especially during financial
crises, which runs contrary to the results of other studies involving BDI volatility spillovers.
Appendix A
The 11 dry bulk companies included in our adjusted DJGS index with the number of outstanding shares and market capitalization
as of November 15, 2018.
No. Company name Stock code Stock exchange Market value Common shares outstanding
1 Ship Finance International SFL NYSE 1492.16 119,373

2 Nippon Yusen KK 9101:JP Tokyo 310350.4 168,659
3 Mitsui OSK Lines 9104:JP Tokyo 332211.3 119,594
4 Matson Inc MATX NYSE 1498.08 42,700
5 COSCO Shipping Holding Co. 601919:CH Shanghai 28939.2 10,216,274
6 Pacific Basin Shipping 2343:HK Hong Kong 7751.71 4,533,167
7 Hyundai Merchant Marine Co. Ltd 011200:KS KOREA 1,178,625 313,806
8 COSCO Shipping Energy Transportation 1138:HK Hong Kong 5559.84 4,032,033
9 Kawasaki Kisen Kaisha, Ltd 9107:JP Tokyo 141752.9 93,272
10 Pan Ocean Co Ltd 028670:KS KOREA 1082.12 144,273
11 Golden Ocean Group NASDAQ: GOGL Nasdaq 2,549,894 534,569
Note:
1. SFL’s assets consist of approximately 20 oil tankers, over 20 dry bulk carriers, approximately 20 containers, 2 chemical tankers, 2
new-building oil tankers…etc. (Reuters.com)
2. Nippon Yusen mainly provides marine transportation services and transportation management solution from international hub
ports to both domestic and international ports. The Company operates container transportation, specialized carriers, logistics,
and cruise lines. The Company offers scheduled and unscheduled transportation services around the world (Bloomberg.com).
3. Matson, Inc. (Matson) is a holding company. The Company provides ocean transportation and logistics services. Matson's fleet
consists of approximately 20 owned and over three chartered vessels, including containerships, combination container/roll-on/
roll-off ships (Reuters.com).
4. Matson Company's fleet of 17 ships includes containerships, combination container and roll-on/roll-off vessels and custom-
designed barges (Investor.matson.com).
5. COSCO SHIPPING Holdings Co., Ltd. offers shipping services. The Company provides container shipping, terminal operation,
bulk shipping, and container leasing services (Bloomberg.com).
6. Pacific Basin Shipping Limited, through its subsidiaries, provides marine transportation services and logistical support to its
customers through the commercial operation of a large, modern, and uniformly-sized fleet of shallow-draft Handysize dry bulk
carriers (Reuters.com).
7. HYUNDAI MERCHANT MARINE COMPANY LIMITED is a Korea-based company specialized in the provision of shipping services.
Its container segment provides dangerous cargo service, reefer cargo services, over-sized cargo service and others. Its container
services provide container carrier transportation services, which include transpacific services, Asia-Europe services, transatlantic
services, intra-Asia services and Latin America services, with more than 40 sea routes (Reuters.com).
8. COSCO SHIPPING Energy Transportation Co., Ltd. offers marine shipping services. The Company provides refined oil trans-
portation, crude oil transportation, and other services. COSCO SHIPPING Energy Transportation also ships iron ores, dry bulks,
coal, and other products (Bloomberg.com).
9. Kawasaki Kisen Kaisha, Ltd. operates marine cargo and passenger transportation around the world. The Company provides ocean
liner, bulk carrier, car carrier, unscheduled specialized carrier, and energy transportation services (Bloomberg.com).
10. Pan Ocean Co., Ltd. is a shipping company that provides bulk carrier services. The Company operates a fleet consisting of bulkers,
tankers, container ships, Liquefied Natural Gas (LNG) Container and transports cargos including iron ore, coal, grain, and lumber
(Bloomberg.com).
11. Golden Ocean Group Limited, formerly Knightsbridge Shipping Limited, is an international dry bulk shipping company. The
Company is engaged in the transportation of dry bulk cargoes. It owns and operates a fleet of dry bulk carrier vessels, focusing on
the Capesize, Panamax and Supramax markets. Its vessels transport a range of major and minor bulk commodities, including ores,
coal, grains and fertilizers. Its fleet includes owned vessels, bareboat vessels, chartered vessels, commercial management vessels
and newbuildings. It owns over 40 dry bulk carriers and has contracts for over 20 newbuildings. It also has over 10 vessels
chartered-in (of which over eight are chartered in from Ship Finance and over five are chartered in from third parties) and over
278
one vessel chartered-in through a joint venture. Approximately six of the vessels are chartered-out on fixed rate time charters and
the other operates in the spot market or fixed on index-linked time charter contracts (marketscreener.com).
Appendix B
Results of exogeneity and Wald tests for the whole sample period.
Chi-square Significance level
Test of exogeneity
Mean of all variables χ2(6) = 58.0949 0.0000
Mean of RGSCI χ2(2) = 10.9806 0.0041
Mean of RDXY χ2(2) = 0.2788 0.8698
Mean of RDJGS χ2(2) = 44.2192 0.0020
Wald test
Diagonal BEKK χ2(12) = 45.8023 0.0000
Block exclusion test:
RGSCI variance χ2(4) = 10.8531 0.0283
RDXY variance χ2(4) = 8.6926 0.0693
RDJGS variance χ2(4) = 17.0104 0.0019
Results of model diagnosis tests.
Series correlations Lags Statistic p-value
z1, t z1, t (10) 5.8440 0.8282

z1, t (20) 10.684 0.9540
z2, t z2, t (10) 5.2510 0.8738
z2, t (20) 15.519 0.7460
z 3, t z 3, t (10) 7.8650 0.6420
z 3, t (20) 15.436 0.7510
z1,2 t z1,2 t (10) 6.662 0.7569
z1,2 t (20) 10.806 0.9511
z2,2 t z2,2 t (10) 7.9330 0.6354
z2,2 t (20) 20.394 0.4335
z3,2 t z3,2 t (10) 0.1400 0.9999

z3,2 t (20) 0.3350 0.9999
z12, t z12, t (10) 41.233 0.0000
z12, t (20) 64.746 0.0000
z13, t z13, t (10) 43.960 0.0000
z13, t (20) 73.003 0.0000
z23, t z23, t (10) 49.137 0.0000
z23, t (20) 84.603 0.0000
Note: Ljung-Box Q(.) tests are executed for diagnostic analysis. z1, t (z1,2 t ) , z 2, t (z2,2 t ) , and z 3, t (z 3,2 t ) denote the (squared) standardized
residuals for RGSCI , t , RDXY , t , and RDJGS, t , respectively, whereas z12, t , z13, t , and z 23, t denote the product of the standardized residuals of
RGSCI , t , RDXY , t , and RDJGS, t respectively.
Appendix C
Results of exogeneity and Wald tests for the first period.
Chi-square P-value
Test of exogeneity
Mean of RGSCI χ2(2) = 12.2931 0.0021
Mean of RDXY χ2(2) = 3.1455 0.2075
Mean of RDJGS χ2(2) = 9.8783 0.0072
Wald test
Diagonal BEKK χ2(12) = 184.7913 0.0000
Block exclusion test
RGSCI variance χ2(4) = 12.5651 0.0136
RDXY variance χ2(4) = 45.4863 0.0000
RDJGS variance χ2(4) = 30.4571 0.0000
279
Series correlations z t (Lags) Statistic p-value
z1, t z1, t (10) 7.855 0.6430

z1, t (20) 12.993 0.8777
z2, t z2, t (10) 2.629 0.9889
z2, t (20) 9.705 0.9732
z 3, t z 3, t (10) 9.761 0.4617
z 3, t (20) 38.472 0.0078
z1,2 t z1,2 t (10) 8.972 0.5348
z1,2 t (20) 21.039 0.3949
z2,2 t z2,2 t (10) 4.431 0.9258
z2,2 t (20) 9.712 0.9731
z3,2 t z3,2 t (10) 8.859 0.5455
z3,2 t (20) 25.150 0.1958
z12, t z12, t (10) 10.489 0.3987
z12, t (20) 22.656 0.3060
z13, t z13, t (10) 11.254 0.3381
z13, t (20) 21.510 0.3677
z23, t z23, t (10) 24.649 0.0061
z23, t (20) 37.301 0.0108
Appendix D
Results of exogeneity and Wald tests for the second period.
Chi-square P-value
Test of exogeneity
Mean of RGSCI χ2(2) = 1.3944 0.4980
Mean of RDXY χ2(2) = 0.2554 0.8801
Mean of RDJGS χ2(2) = 21.7197 0.0000
Wald test
Diagonal BEKK χ2(12) = 40.0333 0.0001
2
RGSCI variance χ (4) = 7.4672 0.1132
RDXY variance χ2(4) = 6.5138 0.1639
RDJGS variance χ2(4) = 8.7718 0.0671
z1, t z1, t (10) 5.0630 0.8869

z1, t (20) 21.732 0.3552
z2, t z2, t (10) 7. 0010 0.7254
z2, t (20) 21.614 0.3618
z 3, t z 3, t (10) 21.079 0.0205
z 3, t (20) 34.159 0.0251
z1,2 t z1,2 t (10) 10.451 0.4019
z1,2 t (20) 15.090 0.7712
z2,2 t z2,2 t (10) 7.6430 0.6636
z2,2 t (20) 13.937 0.8337
z3,2 t z3,2 t (10) 5.1340 0.8821
z3,2 t (20) 22.468 0.3157
z12, t z12, t (10) 8.263 0.6032
z12, t (20) 13.990 0.8310
z13, t z13, t (10) 16.609 0.0835
280
z13, t (20) 23.326 0.2731

z23, t z23, t (10) 13.944 0.1756
z23, t (20) 23.192 0.2795
Appendix E
Results of exogeneity test and Wald test for the third period.
Chi-square P-value
Test of exogeneity
Mean of RGSCI χ2(2) = 6.9392 0.0311
Mean of RDXY χ2(2) = 4.8382 0.0890
Mean of RDJGS χ2(2) = 4.9550 0.0840
Wald test
Diagonal BEKK χ2(12) = 546.6738 0.0000
RGSCI variance χ2(4) = 141.8314 0.0000
RDXY variance χ2(4) = 11.3948 0.0225
RDJGS variance χ2(4) = 94.2857 0.0000
z1, t z1, t (10) 9.180 0.5151

z1, t (20) 14.081 0.8264
z2, t z2, t (10) 8.113 0.6178
z2, t (20) 25.445 0.1849
z 3, t z 3, t (10) 5.6850 0.8410
z 3, t (20) 19.958 0.4605
z1,2 t z1,2 t (10) 2.524 0.9905
z1,2 t (20) 17.623 0.6123
z2,2 t z2,2 t (10) 4.8810 0.8990
z2,2 t (20) 12.539 0.8963
z3,2 t z3,2 t (10) 0. 1450 0.9999
z3,2 t (20) 0.4250 0.9999
z12, t z12, t (10) 14.292 0.1601
z12, t (20) 28.327 0.1019
z13, t z13, t (10) 7.9460 0.6341
z13, t (20) 19.335 0.5002
z23, t z23, t (10) 14.554 0.1492
z23, t (20) 24.111 0.2376
Appendix F
Results of exogeneity and Wald tests for the fourth period.
Chi-square P-value
Test of exogeneity
Mean of RGSCI χ2(2) = 0.9302 0.6281
Mean of RDXY χ2(2) = 2.4929 0.2875
Mean of RDJGS χ2(2) = 27.7642 0.0000
Wald test
281
Diagonal BEKK χ2(12) = 65.7876 0.0000

Block exclusion test
2
RGSCI variance χ (4) = 17.2796 0.0017
RDXY variance χ2(4) = 22.9711 0.0001
RDJGS variance χ2(4) = 7.4702 0.1130
z1, t z1, t (10) 3.5030 0.9670

z1, t (20) 11.2100 0.9406
z2, t z2, t (10) 5.5510 0.8515
z2, t (20) 10.182 0.9648
z 3, t z 3, t (10) 9.2810 0.5057
z 3, t (20) 12.638 0.8924
z1,2 t z1,2 t (10) 8.7490 0.5561
z1,2 t (20) 13.454 0.8571
z2,2 t z2,2 t (10) 10.869 0.3678
z2,2 t (20) 25.734 0.1748
z3,2 t z3,2 t (10) 9.72 60 0.4648
z3,2 t (20) 12.839 0.8842
z12, t z12, t (10) 33.850 0.0002
z12, t (20) 35.876 0.0159
z13, t z13, t (10) 9.2140 0.5119
z13, t (20) 18.096 0.5811
z23, t z23, t (10) 4.1470 0.9405
z23, t (20) 20.644 0.4183
RGSCI , t , RDXY , t , and RDJGS, t
Appendix G. Supplementary material
Supplementary data to this article can be found online at https://doi.org/10.1016/j.tre.2019.05.013.
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Transportation Research Part E 127 (2019) 265–283

Contents lists available at ScienceDirect

Transportation Research Part E

Does the Baltic Dry Index drive volatility spillovers in the

ARTICLE INFO ABSTRACT

2. Literature review and hypotheses

Whole sample October 1, 2007 to October 2,894

4.1. Definition of variables

Baltic Dry Index BDI 100%

Spot freight market Baltic Dry Index BDI

4.2. BEKK–GARCH model

RDXY , t 1 = a2 + 2 RGSCI , t 1 + 2 RDXY , t 1 + 2 RADJGS, t 1 + 2, t (2)

RADJGS, t 1 = a3 + 3 RGSCI , t 1 + 3 RDXY , t 1 + 3 RADJGS, t 1 + 3, t (3)

C11 0 0 E11 0 0 A11 A12 A13 B11 B12 B13 1, t 1

h11, t 1 h12, t 1 h13, t 1

5.1. Descriptive statistics and unit root test

5.2. Results of the tri-variate VAR-BEKK-GARCH-X model

PBDI , t 2894 7.3148 0.7387 5.7453 9.3753 0.9490 0.7064

PP −2.5493/−23.8213 −1.4760/−56.1875 −1.2354/−53.0250 −2.1987/−42.8379

RGSCI , t RGSCI , t 1 −0.0328 0.0173 −1.8901 0.0587

RGSCI , t RGSCI , t 1 −0.0575 0.0498 −1.1554 0.2479

RGSCI , t RGSCI , t 1 0.0043 0.1008 0.0431 0.9656

RGSCI , t RGSCI , t 1 −0.0738 0.0652 −1.1312 0.2580

RGSCI , t RGSCI , t 1 −0.0528 0.0305 −1.7324 0.0832

1 Ship Finance International SFL NYSE 1492.16 119,373

Chi-square Significance level

Results of model diagnosis tests.

Series correlations Lags Statistic p-value

z1, t z1, t (10) 5.8440 0.8282

z3,2 t z3,2 t (10) 0.1400 0.9999

Results of exogeneity and Wald tests for the first period.

Results of model diagnosis tests.

Series correlations z t (Lags) Statistic p-value

z1, t z1, t (10) 7.855 0.6430

Results of exogeneity and Wald tests for the second period.

Results of model diagnosis tests.

Series correlations z t (Lags) Statistic p-value

z1, t z1, t (10) 5.0630 0.8869

z13, t (20) 23.326 0.2731

Results of model diagnosis tests.

Series correlations z t (Lags) Statistic p-value

z1, t z1, t (10) 9.180 0.5151

Results of exogeneity and Wald tests for the fourth period.

Diagonal BEKK χ2(12) = 65.7876 0.0000

Results of model diagnosis tests.

Series correlations z t (Lags) Statistic p-value

z1, t z1, t (10) 3.5030 0.9670

Appendix G. Supplementary material

Supplementary data to this article can be found online at https://doi.org/10.1016/j.tre.2019.05.013.

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