Expiration Day Effects and Futures Trading Profits: Evidence from Taiwan

36 Pages Posted: 22 Aug 2010

See all articles by Edward H. Chow

Edward H. Chow

National Chengchi University (NCCU) - Department of Finance and Banking

Chung-Wen Hung

Southern Taiwan University of Science and Technology

Christine Shu-Hua Liu

National Chengchi University (NCCU)

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance

Date Written: July 20, 2010

Abstract

We set out in this study to analyze the expiration effects of index futures on the cash market in Taiwan, and find that both volatility and trading volume are higher on the final settlement days as compared to normal trading days. We also calculate the volume of open interest for final settlement relating to different classes of traders, as well as the profits from the open interest positions of these traders in index futures contracts. We find that proprietary traders exhibit superior performance whereas foreign investors achieve the worst returns. Our empirical results provide strong evidence in support of the view that the expiration effects in the Taiwan futures market are partially attributable to attempts at ‘marking the close’.

Keywords: Expiration effects, Open interest, Final settlement price, Manipulation

JEL Classification: G14, G15

Suggested Citation

Chow, Edward Hsing-Yi and Hung, Chung-Wen and Liu, Christine Shu-Hua and Shiu, Cheng-Yi, Expiration Day Effects and Futures Trading Profits: Evidence from Taiwan (July 20, 2010). 23rd Australasian Finance and Banking Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1662243 or http://dx.doi.org/10.2139/ssrn.1662243

Edward Hsing-Yi Chow

National Chengchi University (NCCU) - Department of Finance and Banking ( email )

64, Chih-nan Rd., Sec. 2, Mucha,
Taipei, 116
Taiwan
8862-2939-3091-81206 (Phone)
886-2-2939-3394 (Fax)

Chung-Wen Hung (Contact Author)

Southern Taiwan University of Science and Technology ( email )

710
Taiwan

Christine Shu-Hua Liu

National Chengchi University (NCCU) ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

Cheng-Yi Shiu

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

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