Trading volume and volatility in the shipping forward freight market

► The study investigates the price volatility and volume relation in the FFA market. ► It is observed that a momentum effect drives the FFA market and trading activity. ► The FFA trades are mainly information driven by speculators rather than hedgers. ► There is a positive contemporaneous relation between volatility and trading volume. ► Also, lagged price volatility has a negative impact on FFA trading volume. This paper investigates the price volatility and trading volume relationship in the forward freight agreement (FFA) market for dry bulk ships over the period 2007–2011. It is found that FFA price changes have a positive impact on trading volume, suggesting a momentum effect as higher capital gains encourage more transactions. There is also evidence of a contemporaneous and positive relation between trading volume and volatility, which is in line with evidence from financial markets and the Mixture of Distribution Hypothesis. However, increases in price volatility lead to lower future trading activities in the FFA market.