Investors' preference towards risk: Evidence from the Taiwan stock and stock index futures markets

Zhuo Qiao, Ephraim Clark, Wing Keung WONG

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)

Abstract

We apply the stochastic dominance (SD) tests proposed by Linton (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.

Original languageEnglish
Pages (from-to)251-274
Number of pages24
JournalAccounting and Finance
Volume54
Issue number1
DOIs
Publication statusPublished - Mar 2014

Scopus Subject Areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

User-Defined Keywords

  • Risk averter
  • Risk seeker
  • Stochastic dominance
  • Stock index futures
  • Utility maximization

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