Relationship between CAPM-βand market changes in the Japanese liner shipping industry

In the past few decades, the market environment of the liner shipping industry has changed. The most important changes are in market power and regulation, such as the Shipping Act of 1984 and the Ocean Shipping Reform Act of 1998 in the United States. We estimate and draw the time-varying systematic risk β in the Japanese shipping industry by using Kalman filters and relate the estimated path of β to market changes during 1980–2006. To interpret market environment in the Japanese liner shipping industry, we focus on two points. The first is that the introduction of policies for promoting competition increases β, and the second is that an increase in market power due to cooperation and concentration among firms reduces β. Our results support the first point and suggest that the increasing trend of β during 1980–1990 reflects regulatory change in the liner shipping industry. On the other hand, the trends of β during 1990–1998 are decreasing, which seems to be consistent with the second point suggesting that the market risk was alleviated with inter-firm cooperation coming into effect. After 1998 the trend flattens, which can be interpreted by offsetting the two conflicting factors stemming from the first and second points.