Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/87270
Authors: 
Lean, Hooi Hooi
McAleer, Michael
Year of Publication: 
2013
Series/Report no.: 
Tinbergen Institute Discussion Paper 13-132/III
Abstract: 
This paper examines risk-averse and risk-seeking investor preferences for oil spot and futures prices by using the mean-variance (MV) criterion and stochastic dominance (SD) approach. The MV findings cannot distinguish between the preferences of spot and futures markets. However, the SD tests show that spot dominates futures in the downside risk, while futures dominate spot in the upside profit. On the other hand, the SD findings suggest that spot dominates futures in downside risk, while futures dominate spot in upside profit. Risk-averse investors prefer investing in the spot index. Risk seekers are attracted to the futures index to maximize their expected utility but not expected wealth in the entire period, as well as for both the OPEC and Iraq War sub-periods. The SD findings show that there is no arbitrage opportunity between the spot and futures markets, and these markets are not rejected as being efficient.
Subjects: 
Stochastic dominance
mean-variance
risk averter
risk seeker
futures market
spot market
JEL: 
C14
G12
G15
Document Type: 
Working Paper

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