The question of safety

There are numerous possible advantages to be gained from the accurate prediction of future movements in the Baltic Freight Index (BFI). Because of the difficulties inherent in long-range forecasting, however, the potential for such predictions to provide insight into the future state of the physical dry bulk market is perhaps limited. The greater accuracy of short-term forecasts, on the other hand, facilitates the development of a forecasting model form is justified by the inevitably continuous nature of futures market speculation. Such a model is developed through the application of the Box—Jenkins approach to time series analysis and forecasting. The methodology is presented and the resulting model is evaluated on the basis of objective measures of predictive power and by comparison with alternative forecasting models. Finally, the applicability of the model to the practice of BIFFEX speculation is assessed by judging its performance within a simulated BIFFEX trading environment.