Availability and Settlement of Individual Stock Futures and Options Expiration Effects: Evidence from High-Frequency Data

Posted: 24 Jan 2005

See all articles by Donald D. Lien

Donald D. Lien

University of Texas at San Antonio - College of Business - Department of Economics

Li Yang

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Abstract

This study examines whether the expiration-day effects of stock options traded in Australian Stock Exchange on return, volatility, trading volume, and temporary price changes of individual stocks vary with the availability and the settlement method of individual stock futures contracts. Using transaction data of the stocks that have both options and futures contacts from 1993 to 1997, we find that options expiration has significant effects on return and volatility of the underlying stocks in absence of individual stock futures. After introduction of a cash-settled stock futures contract, the effects decrease notably. However, the switch of a futures contract from cash settlement to physical delivery promotes the expiration effects on return and volatility and boosts temporary price changes on expiration days. Finally, options expiration has little effect on trading volume. Trading activity tends to behave normally regardless whether stock futures contracts are available or not.

Keywords: Individual stock futures, settlement method of futures contract, expiration effects

JEL Classification: C14, G14, G15

Suggested Citation

Lien, Donald and Yang, Li, Availability and Settlement of Individual Stock Futures and Options Expiration Effects: Evidence from High-Frequency Data. Quarterly Review of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=652762

Donald Lien

University of Texas at San Antonio - College of Business - Department of Economics ( email )

6900 North Loop 1604 West
San Antonio, TX 78249
United States
210-458-4313 (Phone)
210-458-4308 (Fax)

Li Yang (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+610293855857 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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