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Stochastic dominance relationships between stock and stock index futures markets: International evidence
Zhuo Qiao1; Wing-Keung Wong2; Joseph K.W. Fung3
2013-06-03
Source PublicationEconomic Modelling
ISSN0264-9993
Issue33Pages:552-559
Abstract

In this paper, we first modify the stochastic dominance (SD) test for risk averters proposed by Davidson and Duclos (2000) to be the SD test for risk seekers. We then adopt both tests to examine the SD relationships between stock indices and their corresponding index futures for 10 countries. The sample contains data from 6 developed countries and 4 developing countries. The study proposes that there should be no SD relationship between spot and futures markets in developed financial markets in which arbitrage opportunities (both pure and quasi) are rare and short-lived. However, we expect that SD relationships could be found in emerging financial markets that have more impediments to arbitrage. Consistent with this conjecture, our study finds that there are no SD relationships between spot and futures markets in the mature market sample, implying that these markets could be efficient. However, for the emerging markets, spot dominates futures for risk averters, while futures dominate spot for risk seekers in the second- and third-order SD. These results indicate that there are potential gains in expected utilities for risk averters (seekers) if they switch their investment from futures (spot) to spot (futures) in the emerging markets.

KeywordStochastic Dominance Risk Averter Risk Seeker Stock Index Futures
DOIhttps://doi.org/10.1016/j.econmod.2013.04.049
Indexed BySSCI ; SSCI
Language英语
WOS Research AreaBusiness & Economics
WOS SubjectEconomics
WOS IDWOS:000323798100065
PublisherELSEVIER SCIENCE BV, PO BOX 211, 1000 AE AMSTERDAM, NETHERLANDS
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Cited Times [WOS]:5   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionFaculty of Business Administration
DEPARTMENT OF FINANCE AND BUSINESS ECONOMICS
Corresponding AuthorZhuo Qiao
Affiliation1.Department of Finance and Business Economics, University of Macau, Avenida Padre Tomás Pereira, Taipa, Macau, China
2.Department of Economics, Hong Kong Baptist University, Kowloon Tong, Hong Kong, China
3.Department of Finance & Decision Sciences, Hong Kong Baptist University, Kowloon Tong, Hong Kong, China
First Author AffilicationUniversity of Macau
Corresponding Author AffilicationUniversity of Macau
Recommended Citation
GB/T 7714
Zhuo Qiao,Wing-Keung Wong,Joseph K.W. Fung. Stochastic dominance relationships between stock and stock index futures markets: International evidence[J]. Economic Modelling,2013(33):552-559.
APA Zhuo Qiao,Wing-Keung Wong,&Joseph K.W. Fung.(2013).Stochastic dominance relationships between stock and stock index futures markets: International evidence.Economic Modelling(33),552-559.
MLA Zhuo Qiao,et al."Stochastic dominance relationships between stock and stock index futures markets: International evidence".Economic Modelling .33(2013):552-559.
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