Impact Of Derivative Expiry On Nifty 50 Stock Price Volatility

Author

Nookilla Harshit Sri Sai Suraj, Dr. Y.Kanaka Durga


Abstract

 The research question addressed is whether the change in regime to a monthly expiry of index-futures on the NIFTY 50 is related to greater volatility in the underlying index. It looks at 247 daily NIFTY 50 records and 248 NIFTY 50 futures records from 1 October 2025 to 30 September 2026, which is all during the updated Tuesday expiry rule that started for contracts expiring after September 2025. Twelve monthly expiry cycles created using NSS Data Ltd. National Stock Exchange of India (NSE) contract specifications from then onwards. We use the daily absolute log return of the NIFTY 50 as our main measure of volatility, and we check for robustness with Parkinson range and Garman-Klass volatility. We compare a matched baseline window (T-10 to T-6), two near-expiry periods (T-5 to T-3 and T-2 to T-1), the expiry day (T), and the following five days using Wilcoxon signed rank tests and a Friedman repeated-measures test, and we run a HAC regression. There isn’t a statistically significant rise in daily NIFTY 50 volatility on expiry day, or as expiry day gets closer; the average absolute log return is 0.574% in the baseline period, then goes up to 0.650% in T-5 to T-3, 0.694% in T-2 to T-1, and then drops to 0.520% on expiry day, with paired Wilcoxon p-values of 0.054, 0.110, and 0.519. futures trading volume, meanwhile, is much greater in the two and one day pre-expiry and the expiry windows, with trade volumes in these windows rising 55% and 57% respectively on the base period (with the increase being statistically significant in these windows). The evidence suggests, then, that volumes in the derivatives increase markedly as expiry approaches, but not that they increase underlying index volatility as a general year-long proposition. This adds to the mixed results seen in India and shows why we need to be careful when linking higher derivative volume to more volatility in the main market.



Keywords

Derivatives expiry; NIFTY 50; futures; stock-market volatility; expiration effect; trading volume; event study; India



Full Text:

Download Paper PDF


References


  1. Admati, A. R., & Pfleiderer, P. (1988). A theory of intraday patterns: Volume and price variability. The Review of Financial Studies, 1(1), 3–40.
  2. Bhardwaj, K., Garima, Lemma, H. R., & Refera, M. K. (2024). Does index options trading destabilize Indian stock market volatility: An application of ARCH and GARCH models. Cogent Business & Management, 11(1), 2413391. https://doi.org/10.1080/23311975.2024.2413391
  3. Dungore, P. P., & Patel, S. H. (2021). Analysis of volatility, volume and open interest for Nifty Index futures using GARCH analysis and VAR model. International Journal of Financial Studies, 9(1), 7. https://doi.org/10.3390/ijfs9010007
  4. Garman, M. B., & Klass, M. J. (1980). On the estimation of security price volatilities from historical data. The Journal of Business, 53(1), 67–78. https://doi.org/10.1086/296072
  5. Mahalwala, R. (2016). A study of expiration-day effects of index derivatives trading in India. Metamorphosis: A Journal of Management Research, 15(1), 10–19. https://doi.org/10.1177/0972622516629029
  6. Mishra, B. K., & Ramana, L. V. (2015). Does expiration date have an effect on price volatility and traded volumes? Evidence from Indian securities market. Journal of International Business and Economics, 15(4), 23–28. http://dx.doi.org/10.18374/JIBE-15-4.3
  7. Narang, S., & Vij, M. (2013). Long-term effects of expiration of derivatives on Indian spot volatility. International Scholarly Research Notices, 2013, 718538. https://doi.org/10.1155/2013/718538
  8. Parkinson, M. (1980). The extreme value method for estimating the variance of the rate of return. The Journal of Business, 53(1), 61–65.
  9. Stoll, H. R., & Whaley, R. E. (1987). Program trading and expiration-day effects. Financial Analysts Journal, 43(2), 16–28. https://doi.org/10.2469/faj.v43.n2.16
  10. Suryanarayana, K. S., Kandi, V. S. P., & Botta, A. (2024). Expiration day effect on the Nifty Futures volume and price: An empirical evidence. International Journal of Intelligent Enterprise, 11(4), 375–395. https://doi.org/10.1504/IJIE.2024.141875
  11. (2005). Futures and options expiration-day effects: The Indian evidence. Journal of Futures Markets, 25(11), 1045–1065. https://doi.org/10.1002/fut.20178
  12. Wats, S. (2010). Impact of expiration on spot market volatility: A study of NSE Nifty. The IUP Journal of Applied Finance, 16(4), 51–61.
  1. Data Sources and Regulatory References
  2. com. Nifty 50 Historical Data. Historical daily OHLC data supplied as CSV for this study.
  3. com. Nifty 50 Futures Historical Data. Historical daily futures price and volume data supplied as CSV for this study.
  • National Stock Exchange of India. NIFTY 50 F&O contract specifications (current specifications as accessed in October 2026): NIFTY 50 futures expire on the last Tuesday of the expiry month; if Tuesday is a trading holiday, the previous trading day is used.
  1. National Stock Exchange of India. Circular NSE/FAOP/68589, 17 June 2025: Revision in Expiry Day of Index and Stock Derivatives Contracts.
  2. National Stock Exchange of India. Circular NSE/FAOP/71777, 12 December 2025: Trading Holidays for the Calendar Year 2026 (F&O segment).
  3. National Stock Exchange of India. Circular NSE/FAOP/70320, 22 September 2025: Muhurat Trading session on 21 October 2025.
  • National Stock Exchange of India. Circular NSE/FAOP/72352, 16 January 2026: Live Trading Session on 1 February 2026 for presentation of the Union Budget.
  • National Stock Exchange of India. Closing Auction Session (CAS) materials and implementation notices, 2026.

Share your valuable work from Social Media Buttons