Expiration Day Effects and Futures Trading Profits: Evidence from Taiwan

Abstract

We set out in this study to analyze the expiration effects of index futures on the cash market in Taiwan, and find that both volatility and trading volume are higher on the final settlement days as compared to normal trading days. We also calculate the volume of open interest for final settlement relating to different classes of traders, as well as the profits from the open interest positions of these traders in index futures contracts. We find that proprietary traders exhibit superior performance whereas foreign investors achieve the worst returns. Our empirical results provide strong evidence in support of the view that the expiration effects in the Taiwan futures market are partially attributable to attempts at ‘marking the close’.