A Cointegrating Stock Trading Strategy : Application to Listed Tanker Shipping Companies

We propose a strategy to trade a portfolio of listed shipping companies in the US market. In particular, we estimate a cointegrating relationship between the weekly stock market returns of a portfolio of tanker shipping companies and the Baltic Tanker Index, exploiting the close relationship between freight rates and the stock market performance of shipping companies. Our results suggest that a trading strategy on the basis of a cointegrating relationship and a simple moving average rule outperforms a standard buy-and-hold strategy in various investment horizons, often by a very wide margin