The Research Of The Expiration-day Effect In Chinese Futures Market

A futures contract is a standardized trading contract for a commodity or financial asset.That is,it can be a commodity or a financial instrument.Expiration date effect is not only a popular issue in futures market research,but also one of the most important standards to judge whether the trading system is perfect and whether the market operates healthfully.Expiration date effect refers to the phenomenon of market's distortion caused by the imbalance of buying and selling in the futures market and the spot market when the futures contract is near the expiration date,which is manifested as abnormal changes in trading volume,volatility and yield rate.The asymmetry of information,carrying trade,hedging trade,speculative trade,manipulation trade and the existence of the "triple witching moment" in the market may lead to the expiration date effect.In May 2006,the KOSPI200 stock index futures in South Korea had drastic market fluctuations due to market manipulation on the expiration date.On August 16,2013,the IF1308 contract of Chinese Shanghai-Shenzhen 300 stock index futures was widely affected by the "Everbright fat finger" event on the expiration date.The abnormal fluctuations of these futures contracts on the expiration date are alarms for us,so the research of the expiration date effect of futures market in China is necessary.On the one hand,the research of the maturity effect can guide investors to choose rational investment strategies and inspire relevant departments to design reasonable contract system and settlement price,and it can also reduce the panic caused by the violent fluctuations because of market manipulation.On the other hand,it can minimize market's volatility and control the risk of market effectively,and it can also promote the development of futures in Chinese market more sustainably.This paper examined the expiration date effect in Chinese futures market from two perspectives:whether the change of trading volume and the price volatility is significantly abnormal on the expiration date.Because the data series of the turnover rate of the expiration and non-expiration groups do not obey the normal distribution,this paper applied the nonparametric Wilcoxon rank sum test in the process of comparing whether there are differences between the two groups.In order to eliminate the interference of "weekend effect",this paper selected the date which is two-week before the expiration date as corresponding non-expiration date to ensure that the difference between the two groups of data is only related to the expiration date.As for Samuelson effect,this paper built a model based on the T-GARCH process in order to determine whether the number of days before the expiration date affects the price volatility.This paper also explored whether the "seasonal effect" and the leverage effect exist from the results.When the futures contract is close to the expiration date,the basis will converge to zero because the futures price will be very close to the spot price,which means the volatility of the basis will gradually approach to zero when the expiration date is shortened.Because of this excellent feature of basis,the volatility of the basis is used to replace the volatility of price in the modeling process when studying the expiration day effect of Shanghai-Shenzhen 300 stock index futures.In addition,the "weekend effect" and leverage effect of stock index futures are also explored in this paper.The conclusions of this paper are as follows:Whether it is commodity futures contract or stock index futures contract,the change of their trading volume on the expiration date is significantly different from that on the non-expiration date.As for the Samuelson effect,among the 28 corn futures contracts,14 egg futures contracts and 28 polyethylene futures contracts selected,82%,71%and 68%of them have Samuelson effect respectively.That is,the Samuelson effect is present in commodity futures,as well as leverage effect.The estimation results of T-GARCH model also show that there is a "seasonal effect" in corn and egg futures,that is,in different seasons,the number of days before the expiration date has different influence on the futures price volatility,while there is no "seasonal effect" in polyethylene futures.Among the 71 Shanghai-Shenzhen 300 stock index futures contracts selected in this paper,83%of them have Samuelson effect.It can be concluded that Samuelson effect exists in stock index futures.Estimation based on the T-GARCH model also showed that there is a "weekend effect" in stock index futures.Unlike commodity futures,there is no leverage effect in stock index futures.As a whole,these results showed that the maturity effect exists in Chinese futures market.According to the results of this paper and the comparison between the studies of foreign scholars and relevant literature,it can be seen that the expiration day effect of Chinese futures market is relatively mild compared with that of developed countries.The innovation of this paper lies in the innovation of variable selection and research perspective.The innovation of variable selection lies in the introduction of dummy variables representing seasonality in T-GARCH model when investigating the Samuelson effect of commodity futures.That is,this paper studied how the number of days to maturity impacts the volatility of futures prices in different quarters.In the T-GARCH model,the dummy variable is introduced to investigate the "weekend effect" when studying the Samuelson effect of stock index futures.This approach studied whether there is a difference between the impact of the number of days to maturity of futures price volatility on Friday and non-Friday,and it made the research of maturity effect more detailed.Innovation in research perspective is shown as following:In order to explore whether Shanghai-Shenzhen 300 stock index futures market and cash market will influence each other,BEKK GARCH model is presented in this paper.Previous scholars explained the expiration date effect from the perspective of market participants' behavior.This paper explained the expiration date effect from the perspective of the volatility transmission between the two markets.