Can the Indicative Price System Mitigate Expiration-Day Effects?
This work was supported by Hankuk University of Foreign Studies Research Fund of 2013. We are grateful to Hee-Joon Ahn, Robert Webb (the editor) and an anonymous referee for many constructive comments and suggestions. Any remaining errors are our responsibility.
Correspondence author, College of Business Administration, Hankuk University of Foreign Studies, 270 Imun-dong, Dongdaemun-Gu, Seoul, South Korea. Tel: +82-2-2173-3124, Fax: +82-2-959-4645, e-mail: firstname.lastname@example.org
We investigate whether the indicative price system, introduced in the Korean derivatives market on July 1, 2003, has helped mitigate the options and futures expiration-day effects. Prior to introduction of this system, we find evidence of high trading volume and significant price reversals during the first half hour of trading for the day immediately following the expiration day. These effects decline significantly after July 1, 2003. Our evidence suggests that the indicative price system can mitigate the expiration-day effects.