The impact of index futures trading on day-of-the-week effects in Japan

Abstract

This paper investigates the impact of index futures on daily return seasonality in Japan. The introduction of index futures is hypothesized to increase the flow of information into spot prices, which in turn causes a shift in daily return seasonality. The introduction of index futures coincides with a significant impact on the return structure in Japan, both in terms of the daily seasonals and the lag effects of past returns on current returns. Of particular interest, the Japanese Tuesday effect disappears after the introduction of index futures, and in the post futures period, Monday returns are found to be anomalous.