1. ¹Clarkson Fund Management, London, UK. E-mail: roar_adland@yahoo.com
2. ²Agder University College, Kristiansand, Norway

Abstract

Despite the illiquid and heterogeneous nature of the second-hand market for bulk ships and the resulting difficulty of creating reliable time series of ship prices for generic ships, the literature on ship price dynamics relies heavily on time series models. In this paper we present, for the first time, an analysis of ship valuation using cross-sectional data based on actual sale and purchase transactions in the second-hand market for bulk ships. This allows us to investigate price formation in the second-market free of broker bias and measurement error. Moreover, we do not impose a strict linear model specification but allow for the presence of non-linearity in a flexible non-parametric vessel valuation function. Based on data from more than 1,850 individual sales of Handysize bulk carriers from January 1993 to October 2003, we find that the second-hand value of a vessel can be well described as a partially non-linear function of three main factors: DWT, age, and the state of the freight market.