• Expiration Day Effects of MSCI Taiwan Index Futures

Abstract

This paper examines the impacts of the expiration of the MSCI Taiwan stock index futures on the spot market. Results show abnormally large volume, volatility and price reversal exist during the last 5-minute interval of expiration days, On all expiration days, the volume of index stocks is significantly greater than that on non-expiration days and is eight times of that of non-index stocks. Volatility of index stocks increases dramatically during the last 5-minute of trading and subsides in overnight interval. Price reversals are found to be significant as well. Regression analysis suggests that only the abnormal volume, but the volatility or reversal, can be explained by our chosen variables. The magnitude of abnormal volume is directly related to the size of open interest, whereas the magnitudes of abnormal volatility and price reversal are less explainable by the regression. We also find that the abnormal volume enlarged after the stock market adopted a five-minute closing call procedure. It suggests that

the closing call may not be effective in absorb large order imbalance.

Keywords: Expiration-day effects; Price reversal; Index arbitrage