Program Trading and Individual Stock Returns: Ingredients of the Triple-Witching Brew

The price and trading volume behaviors of individual stocks in the Standard and Poor's 500 Stock Index (S&P 500) are analyzed on stock index futures expiration days, a time when the market is known to be subject to heavy program trading. The price behavior of stocks that are subject to program trading is shown to be very similar to stocks that are not. Stocks that decline in price in the last half hour Friday tend to increase in price at the opening on Monday and vice versa. The Monday reversal as a fraction of the Friday price change is only slightly higher for the S&P 500 stocks than for non-S& P 500 stocks, indicating that the price reversals reflect, for the most part, the bid-ask spreads of the individual stocks. Trading volume in the last half hour of expiration days is shown to be substantially higher than normal. Copyright 1990 by the University of Chicago.