Option Expiration Day Effects in Small Markets: Evidence from the Oslo Stock Exchange

Abstract

This study examines the effects of option expiration on the underlying securities traded on the Oslo Stock Exchange (OSE). The primary motivation for the analysis is concern among investors and regulators about market manipulation around the time of options expiration in small markets such as the OSE. Similar to studies of U.S. and U.K. markets, the results find some evidence of downward price pressure on the underlying stocks on expiration day with a rebound of prices the following day. The analysis gives little support for the conjecture that either arbitrage of offsetting activity related to option exercise is the cause for the increase in trading volume and ultimately abnormal price effects. Finally, examination of hourly returns at expiration suggests that market manipulation is not a pervasive problem.

JEL Classification: G13, G14