Futures Expiration Day Effects on Spot Market Volatility: Evidence from the Nse

Abstract

The present study seeks to investigate the futures contracts expiration day effects on price reversal and volatility in Nifty as well as individual stocks by employing GARCH framework. The results confirm presence of upward pressure in volatility of Nifty at both mean and variance level, at time of futures contracts expiration day. However there is neither a positive nor negative price (and volatility) reversal following the expiration of derivative contracts. In case of individual stocks, volatility has been increased at time of expiration day of futures contracts in most of the cases. The results however could not find price reversal for most of the individual stocks.

Keywords: GARCH Framework, Expiration Day Volatility Effect, Price Reversal Effect

JEL Classification: F21, G26