Return lead–lag and volatility transmission in shipping freight markets YAO-JEN HSIAO † , HENG-CHIH CHOU † * and CHUN-CHOU WU ‡ † Department of Shipping & Transportation Management, National Taiwan Ocean University, Keelung, Taiwan ‡ Department of Finance, National Kaohsiung First University of Technology, Kaohsiang, Taiwan This study investigates the return lead–lag and volatility transmission between dry bulk shipping and container shipping freight markets over the period before, during and after the 2008 financial tsunami. Both cointegration analysis and the Granger causality test are applied to explore the lead–lag relationship between the Baltic dry index (BDI) and the China containerized freight index (CCFI). Besides, in the study we employed GARCH–BEKK model, which allows for transmission in freight volatility. On the whole, the empirical results show that the BDI reflects the economic climate earlier than the CCFI during the financial tsunami, whereas the CCFI leads the BDI after the financial tsunami. The price formation hypothesis could well explain the relationship. Moreover, volatility spillovers are found in most subperiods. The dynamics of the conditional volatilities differ, but causality links in the variance are found to be strong and bidirectional in normal periods, and unidirectional during the financial tsunami. Therefore, the occurrence of the financial tsunami could be regarded as an interference factor. 1. Introduction Marine transport is the major means of global trade and logistics. Due to huge amounts of ship-asset investments and freight charges based on the prevailing market price levels, shipping companies should take into account the volatility of market freights to ensure long-run and stable business operations. Marine shipping can be divided into container shipping and bulk shipping. Container shipping is nearly an oligopolistic industry, and many global strategic alliances have been formed. Freight rates are decided by the leading shipping companies and the alliances. Hence, short-run freights are stable and transparent. They include fuel surcharges, canal surcharges, container field operating fees and study- work fees. On the other hand, bulk shipping is a near-perfectly competitive industry, with freight rates determined by market demand and supply. These rates are subject to the global economic climate, including demand, weather, politics and other factors, or the ship tonnage, which is the supply aspect. As a result, freight rates have high volatility and are difficult to forecast. Recently the rapid economic growth of emerging countries has led to apparent volatility for both container and bulk shipping freights. Kavussanos and Visvikis (2006) discussed shipping freight rate, and suggested that the shipping market is characterized by great freight volatility and a high level of risk. Adland and Cullinane (2006) pointed out *To whom correspondence should be addressed. E-mail: hcchou@ntou.edu.tw © 2013 Taylor & Francis Maritime Policy & Management, 2014 Vol. 41, No. 7, 697–714, http://dx.doi.org/10.1080/03088839.2013.865849