Expiration-day effects: Does settlement price matter?

We compare the expiration-day effects of two index futures contracts, TAIEX futures and SGX TW futures, which have the same underlying spot market, but different settlement mechanisms. By taking into account other factors such as open interests and institutional traders' activities, we find that the settlement mechanism and traders' structure affect expiration-day effects. In terms of minimizing expiration-day effects, the average price is better than the opening price, which in turn is better than the closing price settlement. Moreover, the results also demonstrate that foreign institutional traders' trading activities increase expiration-day effects.