The Expiration Effects of Stock Index Derivatives : Empirical Evidence from the Taiwan Futures Exchange

Five index derivatives with the same expiration days, settlement days, and settlement system have been consecutively traded on the Taiwan Futures Exchange (TAIFEX) since 1998. This paper examines the expiration effects of TAIFEX index derivatives on the underlying stock market between 1998 and 2002. Our empirical findings show that no significant expiration effects on the expiration day, but evidence demonstrates that expiration effects have been getting stronger as more relative index derivatives are listed on the TAIFEX. Meanwhile, the expiration effects seem to shift to the opening of the settlement day. In general, the expiration effects in Taiwan are not as significant as those in the U.S. markets, but are stronger than those in Hong Kong market. The special settlement procedures adopted by the TAIFEX may be the reason for the difference