Preferences of risk-averse and risk-seeking investors for oil spot and futures before, during and after the Global Financial Crisis

Hooi Hooi Lean (), Michael McAleer and Wing-Keung Wong

International Review of Economics & Finance, 2015, vol. 40, issue C, 204-216

Abstract: This paper examines risk-averse and risk-seeking investor preferences for oil spot and futures prices by using the mean–variance (MV) criterion, the CAPM statistics, and stochastic dominance (SD) approach. The MV criterion shows that risk averters are indifferent from the oil spot and futures but risk seekers prefer to invest in oil futures to spot. The information drawn from the CAPM statistics does not lead to any preference between spot and futures prices. Our SD results reveal that risk-averse investors prefer the spot index, whereas risk seekers are attracted to the futures index to maximize expected utility, though not their expected wealth for the entire period as well as for the sub-period (pre-GFC) before the 2008 Global Financial Crisis (GFC) and the sub-period during and after the GFC (GFC). To compare the performance of spot in pre-GFC and GFC sub-periods, we find that the 2008 GFC has no impact on the means, variances, and the CAPM statistics. In addition, our SD analysis reveals that spots from pre-GFC and GFC do not dominate each other, both risk averters and risk seekers are indifferent from the spots from pre-GFC and GFC, there is no arbitrage opportunity for spots before and after GFC, and the spot market is efficient to the GFC crisis. The same conclusion is drawn on the impact of the GFC on the futures. The findings in our paper could provide more information to academics, practitioners, and policy makers in their decision toward oil spot and futures markets as well as toward the impact of any financial crisis in the future.

Keywords: Stochastic dominance; Risk averter; Risk seeker; Futures market; Spot market (search for similar items in EconPapers)
JEL-codes: C14 G12 G15 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056015000416
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:40:y:2015:i:c:p:204-216

DOI: 10.1016/j.iref.2015.02.019

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().