A new set of model-free volatility and asymmetry indicators for the European Oil & Gas market

This paper develops, for the first time, a set of model-free option-implied risk indicators for the STOXX Europe 600 Oil & Gas index. Specifically, we construct a volatility index, two Corridor Implied Volatility measures that separately capture upside and downside risk, and a Risk Asymmetry Index. We investigate whether these forward-looking indicators contain information about subsequent 30-day returns of the STOXX Europe 600 Oil & Gas index. The empirical results show that the volatility-based indicators are positively and significantly associated with future medium-term returns, consistent with a time-varying risk-premium mechanism. In particular, the downside Corridor Implied Volatility measure provides the strongest predictive evidence, whereas the Risk Asymmetry Index displays weaker and less stable predictive ability. The results remain robust across a range of model specifications and market conditions and continue to hold after controlling for past returns and oil price dynamics. Moreover, the volatility-based indicators improve forecasting performance relative to a historical benchmark and generate economically meaningful gains in portfolio allocation. The findings suggest that option-implied volatility measures contain valuable forward-looking information that cannot be fully recovered from historical returns or recent oil price movements alone. Beyond introducing the first model-free implied risk indicators for the European Oil & Gas sector, this study provides new evidence that option-implied measures can improve the prediction of medium-term returns and offer useful information for investors, portfolio managers, and risk managers operating in European energy markets.