Expiration-day effects on individual stocks and the overall market: Evidence from Taiwan

On expiration days of the MSCI-TW index futures, the Taiwan spot market is associated with abnormally large volume and high index volatility, along with mild index reversal. The effects concentrate only in the last five minutes of expiration days and appear to be strengthened by the adoption a call auction closing procedure by the Taiwan Stock Exchange. Individual index stocks show high volatility and strong tendency of price reversal, with large- and small-cap stocks being affected more than the medium-sized stocks. The highest-weighted stocks exhibit excessive volume and volatility, which is disproportionate to the impact on all other index stocks, indicating that the expiration-day effects may have been amplified by the attempt of price manipulation using large-cap stocks.