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

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 13-132/III

Classification and Topics

• Classification: Wirtschaft ; Semiparametric and Nonparametric Methods: General ; Asset Pricing; Trading Volume; Bond Interest Rates ; International Financial Markets
• Subject: Stochastic dominance ; mean-variance ; risk averter ; risk seeker ; futures market ; spot market

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lean, Hooi Hooi ; McAleer, Michael
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/87270
• Last update: 10.03.2025, 11:46 AM CET