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Expiration day effects on European trading volumes

Author

Listed:
  • Bogdan Batrinca

    (University College London)

  • Christian W. Hesse

    (University College London)

  • Philip C. Treleaven

    (University College London)

Abstract

This study investigates the effect of periodic events, such as the stock index futures and options expiration days and the Morgan Stanley Capital International (MSCI) quarterly index reviews, on the trading volume in the pan-European equity markets. The motivation of this study stems from anecdotal evidence of increased trading volume in the equity markets during the run-up to the index options and futures expiration days and MSCI rebalances. This study investigates this phenomenon in more detail and analyses the trading volumes of seven European stock indices and the MSCI International Pan-Euro Price Index. The analysis features a multi-step ahead volume forecast, which is important for practitioners in order to plan multi-day trades while looking to minimise the market impact. The results confirm higher trading activity on the futures and options expiration days, as well as on the MSCI rebalance day. We report a clear futures and options expiration day effect, which accounts for the Friday effect in terms of larger trading volumes. The MSCI rebalance trading volume is significantly different from the volume of the adjacent months with no MSCI reviews, but they cannot explain the end-of-month effect entirely.

Suggested Citation

  • Bogdan Batrinca & Christian W. Hesse & Philip C. Treleaven, 2020. "Expiration day effects on European trading volumes," Empirical Economics, Springer, vol. 58(4), pages 1603-1638, April.
    • Handle: RePEc:spr:empeco:v:58:y:2020:i:4:d:10.1007_s00181-019-01627-2
    DOI: 10.1007/s00181-019-01627-2
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    More about this item

    Keywords

    Trading volume; Expiration day effect; Behavioural finance; European stock market; Feature selection;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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