Market efficiency within dry bulk markets in the short run: a multi-agent system dynamics Nash equilibrium

In this paper, we assess the Efficient Market Hypothesis (EMH) in relation to dry bulk shipping in the short run. The aim is to explain why freight rates in the different ship segments are highly correlated. By building a system dynamics model, which is well-suited to modelling complex and stochastic processes with limited data availability, we attempt to track the arbitrage process in which the different ship types (Handy, Panamax and Capesize) literally seek to transport each others’ cargoes (substitution) when this is beneficial. Also, within one ship segment, we govern the arbitrage opportunities arising from regional differences in freight rates. Although the EMH is ever more contested in the maritime literature, holistic and analytical proof is provided that efficiency is maintained through the intrinsic arbitrage free and evolutionary behaviour in the system towards the Nash equilibrium.