SKEW_Index_JFS_Final.pdf (514.84 kB)
The SKEW index: extracting what has been left
journal contribution
posted on 2023-06-09, 22:01 authored by Mattia Bevilacqua, Radu TunaruRadu TunaruThis study disentangles a measure of implied skewness that is related to downward movements in the U.S. equity index from the corresponding implied skewness that is associated with upward movements. A positive SKEW index is constructed from S&P 500 call options, whereas a negative SKEW index is constructed from the S&P 500 put options. We show that the positive SKEW is linked to market sentiment, whereas the negative SKEW is related to existing tail risk measures. The negative SKEW is proposed as a more objective prudent tail risk measure, and it is found to be able to predict recessions, market downturns, and uncertainty indicators up to one year in advance. The predictive power of the negative SKEW is also confirmed when we control for other tail risk measures and also out-of-sample.
History
Publication status
- Published
File Version
- Accepted version
Journal
Journal of Financial StabilityISSN
1572-3089Publisher
ElsevierExternal DOI
Article number
a100816Department affiliated with
- Accounting and Finance Publications
Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2020-11-02First Open Access (FOA) Date
2022-05-02First Compliant Deposit (FCD) Date
2020-10-31Usage metrics
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