Effects of altering transaction costs on the expiration-day effect of stock index futures

Abstract

To discourage the intense fluctuations of stock index futures, CFFEX repeatedly altered futures policy and increased investors' transaction costs in 2015. With nonparametric tests, this paper compares the volume effect, volatility effect and price effect between expiration-day and non-expiration day, and then investigates the changes of expiration-day effect before and after the futures' adjustment. Abnormal trading volume in stock markets is not found on expiration-day, and the increase of transaction costs has no significant effect on volume effect. The expiration of CSI 300 stock index futures is associated with an increase in the volatility, but it is greatly weakened after the futures are restricted. This may be because the size of futures market decreases dramatically. No evidence suggests that price distortions occurred and the spot price moves along the original direction on the following trading day. This trend is strengthened after futures policy adjustment. Price shock are not found, and there are no obvious changes before and after the futures' adjustment.