Expiration day effects: The case of Hong Kong

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,

New evidence on expiration-day effects usingrealized volatility: An intraday analysis for the Spanish stock exchange

“…However, the downward pressure on the underlying stock market does not tend to reverse at the next opening, suggesting that expiration should not be associated with this price pattern. Similar findings are detected when expiration-day effects are analyzed in other countries (see Chow, Yung, & Zhang, 2003;Corredor et al, 2001;Karolyi, 1996;Pope & Yadav, 1992;Stoll & Whaley, 1997, among others).…”

Expiration-Day Effects - An Asian Twist

“…However, by examining a longer data set (from 1990 to 1999), Chow, Yung, and Zhang (2003) do not find a significant difference between expiration and non-expiration day volumes. On the other hand, Chow et al find higher volatility on expiration days, but Bollen and Whaley (1999) do not.…”

Futures and options expiration-day effects: The Indian evidence

“…Kan (2001) also found no evidence of abnormal volatility or price reversal on the expiration day in Hong Kong. However, Chow, Yung, and Zhang (2003), for the same market, found some abnormal expiration-day effects on the price and the return volatility but no effect on the volume. Alkeback and Hagelin (2004) found high volumes on expiration days but no price distortions in Sweden.…”