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Expiration-Day Effects of the All Ordinaries Share Price Index Futures: Empirical Evidence and Alternative Settlement Procedures
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Hans R. Stoll and Robert E. Whaley
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Abstract
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Stock index futures were the most successful financial innovation of the 1980s.
In spite of their widespread use internationally, they continue to be criticised for
causing 'aberrations' in the stock market, particularly on expiration days when
futures contracts are cash-settled. This paper examines expiration-day effects of the
Sydney Futures Exchange's All Ordinaries Share Price Index (SPI) futures and
discusses alternative futures settlement procedures. Our investigations indicate
that, while index stock trading volume is abnormally high near the close on
expiration days, price movements are not different from those observed on other
days. In other words, the SPI futures cash settlement at the close appears to have
worked well through our sample period. This study also describes and analyses the
two basic alternative cash settlement procedures--a single price settlement and an
average price settlement.
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Download this article.
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Keywords
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STOCK INDEX FUTURES; INDEX ARBITRAGE; PROGRAM TRADING; EXPIRATION-DAY EFFECTS;
SETTLEMENT PROCEDURES.
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Contact Details
Hans R. Stoll
Owen Graduate School of Management
Vanderbilt University
Nashville TN 37203
USA
Robert E. Whaley
Fuqua School of Business
Duke University
Durham NC 27706
USA
Email: whaley@mail.duke.edu
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The authors acknowledge the support of the Sydney Futures Exchange and the
Catalyst Institute, Chicago, IL. We thank Stephen Gray for helpful
comments and Anthony Collins of the Sydney Futures Exchange for
assistance in obtaining the data used in the empirical analyses.
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