The relevance of the expiration-effect or derivative instruments from Ibex-35 index on the stock market in Spain

Abstract

The importance of derivative financial instruments is reflected in the steady growth observed in their trading volumes at the worldwide level, from the moment they were first created at the end of the 20th Century. In this framework, and considering the high grade of correlation among the different sectors of the asset market, we will analyze like it affects the expiration-effect of derivative instruments from the selective ibex-35 spanish index to the rest indexes of the market. To do so, we consider the different segments of the Spanish stock market, as represented by their general and sector indexes with daily data and we verify whether the stock market indexes show returns, volatility and trading volumes on the expiration dates of the derivatives that are significantly different from those observed on the rest of the days of the period. Our analyses indicate that the models of the expiration effect are indeed different among segments, verifying, in general, that this effect only appears in the volume and the returns. With such a focus, the investor could foresee an optimal strategy to make profits and minimize his risk on the stock prices.