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Theories of risk: testing investor’s behavior on the Taiwan stock and stock index futures markets
Ephraim Clark1; Zhuo Qiao2; Wing‐Keung Wong3
2015-10-28
Source PublicationEconomic inpuiry
ISSN1465-7295
Volume54Issue:2Pages:907–924
Abstract

This article considers four utility functions—concave, convex, S‐shaped, and reverse S‐shaped—to analyze the behavior of different types of investors on the Taiwan stock index and its corresponding index futures. Using stochastic dominance (SD) rules, we show that the existence of all four investor types is plausible. Risk averters prefer spot to futures, whereas risk seekers prefer futures to spot. Investors with S‐shaped utility functions prefer spot (futures) to futures (spot) when markets move upward (downward). Investors with reverse S‐shaped utility functions prefer futures (spot) to spot (futures) when markets move upward (downward). We show that both spot and futures markets can exist when only risk averters are present, but futures can dominate spot only if there is some risk‐seeking behavior. These results are robust with respect to subperiods, spot returns including dividends, and diversification. 

DOIhttps://doi.org/10.1111/ecin.12288
Language英语
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Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorZhuo Qiao
Affiliation1.Middlesex University Business School,London, UK
2.Faculty of Business Admin-istration, University of Macau, Macau, China
3.Department of Economics, Hong KongBaptist Universit
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Ephraim Clark,Zhuo Qiao,Wing‐Keung Wong. Theories of risk: testing investor’s behavior on the Taiwan stock and stock index futures markets[J]. Economic inpuiry,2015,54(2):907–924.
APA Ephraim Clark,Zhuo Qiao,&Wing‐Keung Wong.(2015).Theories of risk: testing investor’s behavior on the Taiwan stock and stock index futures markets.Economic inpuiry,54(2),907–924.
MLA Ephraim Clark,et al."Theories of risk: testing investor’s behavior on the Taiwan stock and stock index futures markets".Economic inpuiry 54.2(2015):907–924.
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