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Expiration Day Effect in Korean Stock Market: Wag the Dog?

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  • Chang-Gyun Park & Kyung-Mook Lim

Abstract

Despite the great success of the derivatives market, several concerns were expressed regarding the additional volatility stemming from program trading during the expiration of derivatives. This paper examines the impact of the expiration of the KOSPI 200 index derivatives on cash market of Korea Stock Exchange (KSE). The KOSPI 200 index derivatives market has a unique settlement price determination process. The settlement price for the expiration of derivatives is determined by call auction during the last 10 minutes after the trades for matured derivatives are finalized. We analyze typical expiration day effects such as price, volatility, and volume effects. With high frequency data, we find that there are strong expiration day effects in the KSE and try to interpret the results with the unique settlement procedures of the KOSPI 200 cash and derivatives markets

Suggested Citation

  • Chang-Gyun Park & Kyung-Mook Lim, 2004. "Expiration Day Effect in Korean Stock Market: Wag the Dog?," Econometric Society 2004 Far Eastern Meetings 758, Econometric Society.
    • Handle: RePEc:ecm:feam04:758
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    More about this item

    Keywords

    Derivatives; Expiration Day;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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