The Expiration Effects of Stock-Index Derivatives: Empirical Evidence from the Taiwan Futures Exchange

Heng Chih Chou, Wei Ning Chen and Dar Hsin Chen

Emerging Markets Finance and Trade, 2006, vol. 42, issue 5, 81-102

Abstract: Five index derivatives with the same expiration days, settlement days, and settlement systems have been consecutively traded on the Taiwan Futures Exchange (TAIFEX) since 1998. This paper examines the expiration effects of TAIFEX index derivatives on the underlying stock market between 1998 and 2002. Our empirical findings show no significant expiration effects on the expiration day, but evidence demonstrates that expiration effects have strengthened as more relative index derivatives are listed on the TAIFEX. Meanwhile, the expiration effects seem to shift to the opening of the settlement day. In general, the expiration effects in Taiwan are not as significant as those in U.S. markets but are stronger than those in the Hong Kong market. The special settlement procedures adopted by the TAIFEX may account for the difference.

Keywords: abnormal volume effect; expiration effect; price effect; price reversal; volatility effect (search for similar items in EconPapers)
Date: 2006
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