The SKEW index: Extracting what has been left

Bevilacqua, Mattia ORCID: 0000-0003-3856-2001 and Tunaru, Radu (2021) The SKEW index: Extracting what has been left. JOURNAL OF FINANCIAL STABILITY, 53. p. 100816.

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Official URL: http://dx.doi.org/10.1016/j.jfs.2020.100816

Abstract

This 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.

Item Type:	Article
Uncontrolled Keywords:	Implied skewness, Tail risk, Market downturns, Market sentiment, Financial stability
Divisions:	Faculty of Humanities and Social Sciences > School of Management
Depositing User:	Symplectic Admin
Date Deposited:	18 Mar 2024 10:18
Last Modified:	18 Mar 2024 10:18
DOI:	10.1016/j.jfs.2020.100816
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3179596