Expiration day effects of Taiwan index futures: The case of the Singapore and Taiwan Futures Exchanges

This paper examines the expiration day effects of Taiwan Futures Exchange (TAIFEX) Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) futures (TX), and Singapore Exchange (SGX) Morgan Stanley Capital International (MSCI) Taiwan stock index (MSCI-TW) futures, under different settlement procedures. The results indicate significant price reversal, volatility and abnormal volume stemming from the expiration of the MSCI-TW futures, as compared to the TX, with the expiration day effects becoming much more significant following the adoption of the 5 min closing call procedure by the Taiwan Stock Exchange Corporation (TSEC). The results would seem to support the view that using an average price settlement based on a longer period would mitigate expiration day effects much better than a closing price settlement.