| High volatility in
the stock market is often attributed to index futures and option expirations. Such has been the
case in the U.S., Japan, Australia, and, most recently, Hong Kong. Investigations of the U.S.,
Japanese, and Australian markets, however, fail to establish a direct link. While trading volume
is documented to be abnormally high on index futures and option expiration days, stock market
volatility appears to be no different than on other trading days. This paper investigates the
volatility surrounding the monthly expirations of the Hong Kong Futures Exchange's Hang Seng Index
futures and option contracts. We find no evidence to support the hypothesis that the expiration of
index derivatives affects stock market volatility. |