Risk-asymmetry indices in Europe

Elyas Elyasiani (), Luca Gambarelli () and Silvia Muzzioli ()
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Elyas Elyasiani: Temple University, Fox School of Business and Management
Luca Gambarelli: University of Modena and Reggio Emilia, Marco Biagi Department of Economics and Marco Biagi Foundation
Silvia Muzzioli: University of Modena and Reggio Emilia, Marco Biagi Department of Economics and CEFIN

Annals of Finance, 2025, vol. 21, issue 3, No 2, 283-316

Abstract: Abstract The objectives of this study are fourfold. First, to outline, for the first time, a skewness index for each of the 12 European countries considered. The use of a country-specific measure is a way to deal with the limited availability of option-based data, which is the main obstacle for the construction of such indices in Europe. Second, to compute an alternative risk-asymmetry measure (RAX) based on corridor implied volatilities in order to determine whether it outperforms the standard skewness index in measuring tail risk. Third, to investigate the properties of our proposed index by casting light on the information content of skewness about future returns, which is the subject of intense debate in the literature. Finally, to propose two aggregate indices of asymmetry to monitor the risk of the European financial markets. We obtain several results potentially of interest to both investors and policy-makers. First, risk-neutral distribution is generally left-skewed for the markets under investigation. Second, the risk-neutral distribution for the 60-day maturity is, in general, more skewed to the left than the 30-day risk-neutral distribution, indicating that investors fear tail risk in the medium term to a greater extent than in the short term. Third, for most countries, very low values of the asymmetry indices are associated with positive future returns on the underlying market. Finally, the aggregate asymmetry index based on the RAX methodology is the only one able to forecast future negative returns for all the EU countries in our dataset when it reaches very high levels.

Keywords: Skewness index; Risk-neutral skewness; Corridor implied volatility; Returns; European market (search for similar items in EconPapers)
JEL-codes: G12 G13 G17 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10436-025-00467-8

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