Expiration day effects: The case of Hong Kong

✍ Scribed by Ying-Foon Chow; Haynes H. M. Yung; Hua Zhang

• Publisher: John Wiley and Sons
• Year: 2002
• Tongue: English
• Weight: 128 KB
• Volume: 23
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10054

✦ Synopsis

Abstract

Regulators around the world often express concerns about the high volatility of stock markets due to index
derivative expirations. Earlier studies of expiration day effects have found large volume effects, abnormal return
volatility, and price effects during the last hour of trading on expiration days when the settlement is based on
the closing price. This article examines the impact of the expiration of Hang Seng Index (HSI)
derivatives on the underlying cash market in Hong Kong for the period from 1990 to 1999. The HSI derivative market
is different from most other markets in the sense that the settlement price is computed by taking the average of
5‐minute quotations of the HSI on the last trading day, thus providing an alternative setting for testing
expiration day effects. Our empirical findings indicate that expiration days in Hong Kong may be associated with a
negative price effect and some return volatility on the underlying stock market, but there is no evidence of
abnormal trading volume on the expiration day, or price reversal after expiration. Thus, the existence of
expiration day effects cannot be confirmed in the Hong Kong market. [JEL classification: G13; G14;
G15]. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:67–86, 2003