This paper examines investor preferences for oil spot and futures based on mean-variance (MV)
and stochastic dominance (SD). The mean-variance criterion cannot distinct the preferences of
spot and market whereas SD tests leads to the conclusion that spot dominates futures in the
downside risk while futures dominate spot in the upside profit. It is also found that risk-averse
investors prefer investing in the spot index, whereas risk seekers are attracted to the futures index
to maximize their expected utilities. In addition, the SD results suggest that there is no arbitrage
opportunity between these two markets. Market efficiency and market rationality are likely to
hold in the oil spot and futures markets.
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