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Expiration†Day Effects of the All Ordinaries Share Price Index Futures: Empirical Evidence and Alternative Settlement Procedures

Author

Listed:
  • Hans R. Stoll

    (Owen Graduate School of Management, Vanderbilt University, Nashville TN 37203, US.)

  • Robert E. Whaley

    (Fuqua School of Business, Duke University, Durham NC 27706, USA; E†mail: whaley@mail.duke.edu)

Abstract

Stock index futures were the most successful financial innovation of the 1980s. In spite of their widespread use internationally, they continue to be criticised for causing ‘aberrations’ in the stock market, particularly on expiration days when futures contracts are cash†settled. This paper examines expiration†day effects of the Sydney Futures Exchange's All Ordinaries Share Price Index (SPI) futures and discusses alternative futures settlement procedures. Our investigations indicate that, while index stock trading volume is abnormally high near the close on expiration days, price movements are not different from those observed on other days. In other words, the SPI futures cash settlement at the close appears to have worked well through our sample period. This study also describes and analyses the two basic alternative cash settlement procedures—a single price settlement and an average price settlement.

Suggested Citation

  • 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.
    • Handle: RePEc:sae:ausman:v:22:y:1997:i:2:p:139-174
    DOI: 10.1177/031289629702200202
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    References listed on IDEAS

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    Cited by:

    1. Chin-Lin Chuang & Dar-Hsin Chen & Chung-Hsien Su, 2008. "Reexamining The Expiration Day Effects Of Stock Index Derivatives: Evidence From Taiwan," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 2(2), pages 85-105.
    2. Chung, Huimin & Hseu, Mei-Maun, 2008. "Expiration day effects of Taiwan index futures: The case of the Singapore and Taiwan Futures Exchanges," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 107-120, April.
    3. 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.
    4. Tsung-Yu Hsieh, 2015. "Information disclosure and price manipulation during the pre-closing session: evidence from an order-driven market," Applied Economics, Taylor & Francis Journals, vol. 47(43), pages 4670-4684, September.
    5. Hsu, Chih-Hsiang & Lee, Hsiu-Chuan, 2014. "Insider trading and information revelation with the introduction of futures markets," Economic Modelling, Elsevier, vol. 43(C), pages 173-182.
    6. Sobhesh Kumar Agarwalla & Ajay Pandey, 2013. "Expiration‐Day Effects and the Impact of Short Trading Breaks on Intraday Volatility: Evidence from the Indian Market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 33(11), pages 1046-1070, November.
    7. 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.
    8. Hou, Yang & Nartea, Gilbert, 2017. "Price Discovery in the Stock Index Futures Market: Evidence from the Chinese stock market crash," MPRA Paper 81995, University Library of Munich, Germany.
    9. Bogdan Batrinca & Christian W. Hesse & Philip C. Treleaven, 0. "Developing a Volume Forecasting Model," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 0, pages 1.
    10. Hou, Yang & Li, Steven, 2016. "Information transmission between U.S. and China index futures markets: An asymmetric DCC GARCH approach," Economic Modelling, Elsevier, vol. 52(PB), pages 884-897.
    11. Maniar, Hiren M. & Bhatt, Rajesh & Maniyar, Dharmesh M., 2009. ""Expiration hour effect of futures and options markets on stock market" -- A case study on NSE (National Stock Exchange of India)," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 381-391, June.
    12. Bogdan Batrinca & Christian W. Hesse & Philip C. Treleaven, 2017. "Developing a Volume Forecasting Model," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 7(1), pages 1-1.
    13. Hsieh, Shu-Fan & Ma, Tai, 2009. "Expiration-day effects: Does settlement price matter?," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 290-300, March.
    14. Benson, Karen & Faff, Robert & Smith, Tom, 2015. "Injecting liquidity into liquidity research," Pacific-Basin Finance Journal, Elsevier, vol. 35(PB), pages 533-540.

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