A0975
Title: The earnings-price ratio and predictability of earnings in the dry bulk shipping industry
Authors: Nikos Nomikos - Cass Business School (United Kingdom) [presenting]
Ioannis Moutzouris - Cass Business School (United Kingdom)
Abstract: We examine second-hand vessel prices, net earnings, and returns on capital in the dry bulk shipping industry. We demonstrate that the bulk of variation in net earnings-price ratios reflects varying expected net earnings growth. Furthermore, we contribute to the literature by examining a forward-looking definition of the net earnings-price ratio, and extending the variance decomposition framework to assets with limited economic lives. Our results strongly indicate that shipping net earnings-price ratios negatively forecast future net earnings growth. In addition, there is no statistical evidence that the net earnings-price ratio is negatively related to future returns. These results are in contrast to the recent empirical asset pricing literature in the U.S. equity and housing markets. Importantly, however, our findings agree with recent results obtained from global equity markets. In line with this international evidence, we believe that predictability of earnings growth is driven by the extreme volatility of shipping earnings.
