Risk-averse and Risk-seeking Investor Preferences for Oil Spot and Futures

Type of content
Discussion / Working Papers
Publisher's DOI/URI
Thesis discipline
Degree name
Publisher
University of Canterbury. Department of Economics and Finance
Journal Title
Journal ISSN
Volume Title
Language
Date
2013
Authors
Lean, H.H.
McAleer, M.
Wong, W-K.
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.

Description
Citation
Lean, H.H., McAleer, M., Wong, W-K. (2013) Risk-averse and Risk-seeking Investor Preferences for Oil Spot and Futures. Department of Economics and Finance College of Business and Economics. 28p...
Keywords
stochastic dominance, mean-variance, risk averter, risk seeker, futures market, spot market.
Ngā upoko tukutuku/Māori subject headings
ANZSRC fields of research
Fields of Research::35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350208 - Investment and risk management
Fields of Research::35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350203 - Financial econometrics
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