Preferences of Malaysian Stocks and Futures Markets for Investors Before and After Crises

43 Pages Posted: 12 May 2011

See all articles by Wing-Keung Wong

Wing-Keung Wong

Asia University, Department of Finance

Hooi Hooi Lean

Universiti Sains Malaysia

Shuangzhe Liu

University of Canberra - Division of Business, Law and Information Sciences

Milind Sathye

University of Canberra - School of Accounting, Banking and Finance; University of Canberra - School of Business and Government

Date Written: May 9, 2011

Abstract

This paper applies the MV criterion, CAPM statistics, and the modified stochastic dominance tests to examine the stochastic dominance (SD) relationship between the spot and futures markets in Malaysia and investigates the preference of these markets for risk averters and risk seekers before crises and after crises, including sub-prime crisis. We observe that, for the entire period as well as all the sub-periods in our study, spot is preferred to futures on the downside risk whereas futures is preferred to spot on the upside profits. Moreover, spot dominates futures for risk-averters while futures dominate spot for risk-seekers under the second-order stochastic dominance (SSD), inferring that risk averters prefer to invest in spot whereas risk seekers prefer to invest in futures. The SD relationship between both markets remains the same for the periods before and after crises, and in the period of bull market as well as in the period of bear market. In addition, the relationship also remains the same in the period before and after the implementation of capital control in Malaysia. However, we find that the SSD relationship becomes stronger after 2000. One could thus say that the SSD relationship becomes stronger two years after the capital control is implemented in the markets. Our results infer that the spot and futures markets in Malaysia are efficient, investors are rational, and there is no arbitrage opportunity in these markets.

Keywords: Stochastic Dominance, Futures, Malaysia, Market Efficiency

JEL Classification: C12, G14, G15

Suggested Citation

Wong, Wing-Keung and Lean, Hooi Hooi and Liu, Shuangzhe and Sathye, Milind, Preferences of Malaysian Stocks and Futures Markets for Investors Before and After Crises (May 9, 2011). Available at SSRN: https://ssrn.com/abstract=1837023 or http://dx.doi.org/10.2139/ssrn.1837023

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

Hooi Hooi Lean

Universiti Sains Malaysia ( email )

Economics Program
School of Social Sciences
USM, Penang 11800
Malaysia
604-6532663 (Phone)
604-6570918 (Fax)

HOME PAGE: http://www.soc.usm.my/LeanPages/index.html

Shuangzhe Liu

University of Canberra - Division of Business, Law and Information Sciences ( email )

Australia

Milind Sathye

University of Canberra - School of Accounting, Banking and Finance ( email )

Canberra, Australian Capital Territory 2601
Australia

University of Canberra - School of Business and Government

Canberra, ACT 2601
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
90
Abstract Views
998
rank
382,822
PlumX Metrics