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Investors’ preference towards risk: evidence from the Taiwan stock and stock index futures markets
Author(s) -
Qiao Zhuo,
Clark Ephraim,
Wong WingKeung
Publication year - 2014
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/j.1467-629x.2012.00508.x
Subject(s) - futures contract , stochastic dominance , seekers , stock index futures , financial economics , index (typography) , stock market index , economics , stock (firearms) , order (exchange) , econometrics , business , stock market , finance , geography , computer science , context (archaeology) , archaeology , world wide web , political science , law
We apply the stochastic dominance (SD) tests proposed by Linton et al. (2005) and Davidson and Duclos (2000) for risk averters and risk seekers to examine investors’ preferences with respect to the Taiwan stock index and its corresponding index futures. We find that there is no first‐order SD relationship between Taiwan spot and futures. However, for second‐ and third‐order SD, we find that spot dominates futures for risk averters whereas futures dominates spot for risk seekers. The implication is that to maximize their expected utilities, risk averters prefer to buy stocks, whereas risk seekers prefer long index futures.