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Price reversal as potential expiration day effect of stock and index futures: evidence from Warsaw Stock Exchange

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  • Milena Suliga

    (AGH University of Science and Technology, Faculty of Management, Department of Application of Mathematics in Economics)

Abstract

This paper studies an impact of futures expiration days on the Polish equity market. From three potential expiration effects appearing in the literature (namely, the increased trading volume of underlying assets, increased volatility of their returns, and price reversal after expiration), the latest one is researched in detail for expiration days of futures on the WIG20 index, the mWIG40 index, and individual stocks. The data covers the period from January 2001 to December 2016. The phenomenon of price reversal is studied with the use of regression models, price reversal measures, and event study methodology. The results obtained for expiration days are compared with the results from non-expiration days to check whether potential price reversal can be interpreted as an effect of expiration. No price reversals after futures expirations were found in the returns of the WIG20 nor mWIG40 indexes. In the case of individual stocks, results from all of the three methods support the assumption that price reversal occurs after expiration. The reversal is immediate and is reflected inovernight returns more than in daily returns.

Suggested Citation

  • Milena Suliga, 2017. "Price reversal as potential expiration day effect of stock and index futures: evidence from Warsaw Stock Exchange," Managerial Economics, AGH University of Science and Technology, Faculty of Management, vol. 18(2), pages 201-225.
    • Handle: RePEc:agh:journl:v:18:y:2017:i:2:p:201-225
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    File URL: https://journals.agh.edu.pl/manage/article/view/2839/1991
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    References listed on IDEAS

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    1. Christian Schlag, 1996. "Expiration day effects of stock index derivatives in Germany," European Financial Management, European Financial Management Association, vol. 2(1), pages 69-95, March.
    2. M. Illueca & J. A. LaFuente, 2006. "New evidence on expiration‐day effects using realized volatility: An intraday analysis for the Spanish stock exchange," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 26(9), pages 923-938, September.
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    5. Hans R. Stoll & Robert E. Whaley, 1997. "Expiration†Day Effects of the All Ordinaries Share Price Index Futures: Empirical Evidence and Alternative Settlement Procedures," Australian Journal of Management, Australian School of Business, vol. 22(2), pages 139-174, December.
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    Cited by:

    1. Henryk Gurgul & Milena Suliga, 2020. "Impact of futures expiration on underlying stocks: intraday analysis for Warsaw Stock Exchange," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 28(3), pages 869-904, September.

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