Unveiling Sentiment Dynamics and Forecasting Future Economic Sentiment in the Eurozone using Option-Implied Asymmetry Measures

In this paper, we introduced several asymmetry indices based on option prices for the Eurozone. The aim is to investigate the ability of option-implied asymmetry measures to explain sentiment dynamics and forecast future market sentiment. To achieve our objectives, we measured asymmetry in two ways. Firstly, we decomposed the SKEW index into its positive and negative components. Secondly, we introduced the Risk-Asymmetry (RAX) index as an alternative measure of asymmetry. Our findings suggest that asymmetry indices play a significant role in explaining the level of economic sentiment indicators. Additionally, the asymmetry index obtained from the left tail of the risk-neutral distribution (put prices) contains useful information for predicting the level of sentiment in the following month.