The aim of this paper is to propose a simple and unique measure of risk, that subsumes the conflicting information in volatility and skewness indices and overcomes the limits of these indices in correctly measuring future fear or greed in the market. To this end, we exploit the concept of upside and downside corridor implied volatility, which accounts for the asymmetry in risk-neutral distribution, i.e. the fact that investors like positive spikes in returns, while they dislike negative ones. We combine upside and downside implied volatilities in a single asymmetry index called the risk-asymmetry index (ܴܣ .(ܺThe risk-asymmetry index ሺܴܣܺሻ plays a crucial role in predicting future returns, since it subsumes all the information embedded in both the Italian skewness index ܫܵܶܧܭ ܹand the Italian volatility index (ܫܸܶܫ .(ܺThe ܴܣ ܺindex is the only index that is able to indicate (when reaching very high values) a clearly risky situation for the aggregate stock market, which is detected neither by the ܫܸܶܫ ܺindex nor by the ܫܵܶܧܭ ܹindex.

Elyasiany, E., L., Gambarelli e S., Muzzioli. "The Risk-Asymmetry Index" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2016. https://doi.org/10.25431/11380_1122972

The Risk-Asymmetry Index

Gambarelli, L.;Muzzioli, S.
2016

Abstract

The aim of this paper is to propose a simple and unique measure of risk, that subsumes the conflicting information in volatility and skewness indices and overcomes the limits of these indices in correctly measuring future fear or greed in the market. To this end, we exploit the concept of upside and downside corridor implied volatility, which accounts for the asymmetry in risk-neutral distribution, i.e. the fact that investors like positive spikes in returns, while they dislike negative ones. We combine upside and downside implied volatilities in a single asymmetry index called the risk-asymmetry index (ܴܣ .(ܺThe risk-asymmetry index ሺܴܣܺሻ plays a crucial role in predicting future returns, since it subsumes all the information embedded in both the Italian skewness index ܫܵܶܧܭ ܹand the Italian volatility index (ܫܸܶܫ .(ܺThe ܴܣ ܺindex is the only index that is able to indicate (when reaching very high values) a clearly risky situation for the aggregate stock market, which is detected neither by the ܫܸܶܫ ܺindex nor by the ܫܵܶܧܭ ܹindex.
2016
Dicembre
Elyasiany, E.; Gambarelli, L.; Muzzioli, S.
Elyasiany, E., L., Gambarelli e S., Muzzioli. "The Risk-Asymmetry Index" Working paper, CEFIN WORKING PAPERS, Dipartimento di Economia Marco Biagi - Università di Modena e Reggio Emilia, 2016. https://doi.org/10.25431/11380_1122972
File in questo prodotto:
File Dimensione Formato  
CEFIN-WP61.pdf

Open access

Tipologia: Versione pubblicata dall'editore
Dimensione 1.16 MB
Formato Adobe PDF
1.16 MB Adobe PDF Visualizza/Apri
Pubblicazioni consigliate

Licenza Creative Commons
I metadati presenti in IRIS UNIMORE sono rilasciati con licenza Creative Commons CC0 1.0 Universal, mentre i file delle pubblicazioni sono rilasciati con licenza Attribuzione 4.0 Internazionale (CC BY 4.0), salvo diversa indicazione.
In caso di violazione di copyright, contattare Supporto Iris

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/1122972
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact