Stochastic dominance and behavior towards risk: The market for Ishares

Gasbarro, D., Wong, W-K and Zumwalt, J.K. (2012) Stochastic dominance and behavior towards risk: The market for Ishares. Annals of Financial Economics, 7 (1). pp. 1250005-1.

Abstract

Prospect theory suggests that risk seeking can occur when investors face losses and thus an S-shaped utility function can be useful in explaining investor behavior. Using stochastic dominance procedures, Post and Levy (2005) find evidence of reverse S-shaped utility functions. This is consistent with investors exhibiting risk-seeking tendencies in bull markets and risk aversion in bear markets. We use both ascending and descending stochastic dominance procedures to test for risk-averse and risk-seeking behavior. By partitioning iShares ’ return distributions into negative and positive return regions, we find evidence of all four utility functions: concave, convex, S-shaped and reverse S-shaped

Item Type:	Journal Article
Murdoch Affiliation(s):	Murdoch Business School
Publisher:	World Scientific
Copyright:	World Scientific Publishing Company
URI:	http://researchrepository.murdoch.edu.au/id/eprint/21614

Item Control Page