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1 January 1991 Financial Analysts Journal Volume 47, Issue 1

Expiration-Day Effects: What Has Changed?

  1. Hans R. Stoll
  2. Robert E. Whaley

In June 1987, the Chicago Mercantile Exchange, the New York Stock Exchange and the New York Futures Exchange changed the settlement of their S&P 500 and NYSE index futures and option contracts from the close of trading to the open in an attempt to mitigate concern about occasional abnormal stock price movements at “triple witching hours.” This study analyzes volatility and volume effects on quarterly and monthly (non-quarterly) expiration days in the two and one-half year period before and the two and one-half year period after June 1987.

At quarterly expirations, both trading activity and price volatility in S&P 500 and NYSE contracts were smaller at the close in the post-June 1987 period than in the pre-June 1987 period. At the open, however, trading volume and price reversals increased significantly between the pre-June 1987 period and the post-June 1987 period. The price effect observed at the open on quarterly expirations since June 1987 has been somewhat smaller than the price effect observed at the close in the period before June 1987. This may reflect the new settlement procedures or the fact that expiration-day trading is now split between open and close.

At monthly (non-quarterly) expirations, index stocks behave like non-index stocks on expiration days and like index stocks on non-expiration days. Trading activity and price reversals do not appear to have changed, in a statistical sense, since June 1987, nor are they large in an absolute sense.

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