A New Predictor of US Real Economic Activity: The S&P 500 Option Implied Risk Aversion

• 成果类型: Article
• 署名作者: Faccini, Renato; Konstantinidi, Eirini; Skiadopoulos, George; Sarantopoulou-Chiourea, Sylvia
• 署名单位: University of London; Queen Mary University London; University of Manchester; Alliance Manchester Business School; University of Piraeus; City St Georges, University of London; University of Warwick
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2018.3049
• 发表日期: 2019
• 页码: 4927-4949
• 关键词: option prices; risk aversion; real economic activity; prediction; production economy model

摘要

We propose a new predictor of U.S. real economic activity (REA)-namely, the representative investor's implied relative risk aversion (IRRA) extracted from S&P 500 option prices. IRRA is forward-looking and hence is expected to be related to future economic conditions. We document that U.S. IRRA predicts U.S. REA both in- and out-of-sample once we control for well-known REA predictors and take into account their persistence. An increase (decrease) in IRRA predicts a decrease (increase) in REA. We extend the empirical analysis by extracting IRRA from the South Korean, UK, Japanese, and German index option markets. We find that South Korea IRRA predicts the South Korea REA both in- and out-of-sample, as expected given the high liquidity of its index option market. We show that a parsimonious yet flexible production economy model calibrated to the U.S. economy can explain the documented negative relation between risk aversion and future economic growth.