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

20 Pages Posted: 8 Dec 2005

See all articles by Heng-Chih Chou

Heng-Chih Chou

National Taiwan Ocean University

Wei-Ning Chen

Kainan University - Department of International Business

Dar-Hsin Chen

National Chiao Tung University - Department of Information and Financial Management

Abstract

Five index derivatives with the same expiration days, settlement days, and settlement system 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 that no significant expiration effects on the expiration day, but evidence demonstrates that expiration effects have been getting stronger 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 the U.S. markets, but are stronger than those in Hong Kong market. The special settlement procedures adopted by the TAIFEX may be the reason for the difference.

Keywords: Expiration effect, Price Effect, Volatility Effect, Price Reversal, Abnormal Volume Effect

JEL Classification: G13, G14, G15

Suggested Citation

Chou, Heng-Chih and Chen, Wei-Ning and Chen, Dar-Hsin, The Expiration Effects of Stock Index Derivatives: Empirical Evidence from the Taiwan Futures Exchange. Emerging Markets Finance and Trade, Forthcoming, Available at SSRN: https://ssrn.com/abstract=868599

Heng-Chih Chou (Contact Author)

National Taiwan Ocean University ( email )

2 Bei-Ning Road
Keelung, Taiwan 20224
Taiwan

Wei-Ning Chen

Kainan University - Department of International Business ( email )

No. 1 Kainan Road
Luzhu, Taoyuan County 338
Taiwan

HOME PAGE: http://www.knu.edu.tw

Dar-Hsin Chen

National Chiao Tung University - Department of Information and Financial Management ( email )

Hsinchu 300
Taiwan

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