Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences

Objective: The stochastic dominance theory has extensively employed in various financial fields because it is not necessary to assume a specific distribution of returns, such as normal distribution. In this research, one of its new applications has been used to identify arbitrage opportunities and c...

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Autores principales:	Moslem Peymany Foroushany, Meysam Amiri, Fatemeh Shirazi
Formato:	article
Lenguaje:	FA
Publicado:	University of Tehran 2021
Materias:	stochastics dominance quantile regression arbitrage market efficiency investor preference Finance HG1-9999
Acceso en línea:	https://doaj.org/article/2bafe1da2d634cd384b0aea4818ba78d
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spelling	oai:doaj.org-article:2bafe1da2d634cd384b0aea4818ba78d2021-11-14T06:00:55ZApplication of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences1024-81532423-537710.22059/frj.2021.301157.1007014https://doaj.org/article/2bafe1da2d634cd384b0aea4818ba78d2021-08-01T00:00:00Zhttps://jfr.ut.ac.ir/article_83581_f4d74f3f5b56f193548038655cfa3f86.pdfhttps://doaj.org/toc/1024-8153https://doaj.org/toc/2423-5377Objective: The stochastic dominance theory has extensively employed in various financial fields because it is not necessary to assume a specific distribution of returns, such as normal distribution. In this research, one of its new applications has been used to identify arbitrage opportunities and consequently, to evaluate the efficiency of the market and also to analyse the investor preferences. Methods: To this end, a new approach of estimating stochastic dominance, the quantile regression method is utilized to perform the stochastic dominance test on the daily returns of the Tehran Stock Exchange total index close values over a period of 19 years (from September 1999 to February 2019) that contains different bullish and bearish market conditions. Results: Data analysis suggests that no evidence has been found to reject the dominance of cumulative distribution of returns between the two periods. Thus, the non-rejection of the statistical hypothesis of the first-order stochastic dominance indicates the possibility of obtaining arbitrage profit and on the other hand, the second-order stochastic dominance test rejects the market efficiency hypothesis. The existence of a third-order stochastic dominance can also be seen as a sign of the herd behavior of investors during the upward market conditions. Conclusion: The results indicate the existence of arbitrage opportunities in the Tehran Stock Exchange between bullish and bearish market conditions. Other results of this study, do not confirm the Tehran Stock Exchange efficiency hypothesis, which is consistent with most previous research about the market efficiency of the Tehran Stock Exchange. These findings also imply that risk-averse investors tend to invest in market growth cycles and suggest the existence of herd behavior during these periods.Moslem Peymany ForoushanyMeysam AmiriFatemeh ShiraziUniversity of Tehranarticlestochastics dominancequantile regressionarbitragemarket efficiencyinvestor preferenceFinanceHG1-9999FAتحقیقات مالی, Vol 23, Iss 2, Pp 172-195 (2021)
institution	DOAJ
collection	DOAJ
language	FA
topic	stochastics dominance quantile regression arbitrage market efficiency investor preference Finance HG1-9999
spellingShingle	stochastics dominance quantile regression arbitrage market efficiency investor preference Finance HG1-9999 Moslem Peymany Foroushany Meysam Amiri Fatemeh Shirazi Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
description	Objective: The stochastic dominance theory has extensively employed in various financial fields because it is not necessary to assume a specific distribution of returns, such as normal distribution. In this research, one of its new applications has been used to identify arbitrage opportunities and consequently, to evaluate the efficiency of the market and also to analyse the investor preferences. Methods: To this end, a new approach of estimating stochastic dominance, the quantile regression method is utilized to perform the stochastic dominance test on the daily returns of the Tehran Stock Exchange total index close values over a period of 19 years (from September 1999 to February 2019) that contains different bullish and bearish market conditions. Results: Data analysis suggests that no evidence has been found to reject the dominance of cumulative distribution of returns between the two periods. Thus, the non-rejection of the statistical hypothesis of the first-order stochastic dominance indicates the possibility of obtaining arbitrage profit and on the other hand, the second-order stochastic dominance test rejects the market efficiency hypothesis. The existence of a third-order stochastic dominance can also be seen as a sign of the herd behavior of investors during the upward market conditions. Conclusion: The results indicate the existence of arbitrage opportunities in the Tehran Stock Exchange between bullish and bearish market conditions. Other results of this study, do not confirm the Tehran Stock Exchange efficiency hypothesis, which is consistent with most previous research about the market efficiency of the Tehran Stock Exchange. These findings also imply that risk-averse investors tend to invest in market growth cycles and suggest the existence of herd behavior during these periods.
format	article
author	Moslem Peymany Foroushany Meysam Amiri Fatemeh Shirazi
author_facet	Moslem Peymany Foroushany Meysam Amiri Fatemeh Shirazi
author_sort	Moslem Peymany Foroushany
title	Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
title_short	Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
title_full	Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
title_fullStr	Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
title_full_unstemmed	Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences
title_sort	application of stochastics dominance via quantile regression in analysis of arbitrage opportunities market efficiency and investors preferences
publisher	University of Tehran
publishDate	2021
url	https://doaj.org/article/2bafe1da2d634cd384b0aea4818ba78d
work_keys_str_mv	AT moslempeymanyforoushany applicationofstochasticsdominanceviaquantileregressioninanalysisofarbitrageopportunitiesmarketefficiencyandinvestorspreferences AT meysamamiri applicationofstochasticsdominanceviaquantileregressioninanalysisofarbitrageopportunitiesmarketefficiencyandinvestorspreferences AT fatemehshirazi applicationofstochasticsdominanceviaquantileregressioninanalysisofarbitrageopportunitiesmarketefficiencyandinvestorspreferences
_version_	1718429887675498496

Application of Stochastics Dominance via Quantile Regression in Analysis of Arbitrage Opportunities Market Efficiency and Investors Preferences

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