Aggregating sentiment in Europe: the relationship with volatility and returns

This paper presents several proposals for creating an aggregate sentiment index for the European stock market. We achieve this objective by using the OWA and WOWA operators, which have been successful in finance and have a strong financial interpretation. We compute ten different aggregate sentiment indices for the 2007-2021 period and evaluate their ability to provide information about current and future market volatility and returns. We find several results of interest for both investors and policymakers. Sentiment indices have a strong negative relationship with market volatility. Extreme values of sentiment can predict future market returns, with low values indicating positive returns and high values suggesting negative returns. Finally, using stock market capitalisation as an input of the WOWA operator enhances explanatory power of the indices on future market returns compared to the OWA operator

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

Banks’ attitude to partnership as an antecedent of Open Banking platforms: structural determinants and effects on performance in the Italian context

The recent developments in regulation, in particular PSD2 and ICT technologies, are fostering the Open Banking phenomenon, a model of forced or voluntary collaboration based on the sharing of data and applications between subjects not necessarily affiliated, in order to develop, produce and distribute innovative and value-added financial products and services for the customer. Open Banking is still in its early stages, and the approach with which banks decide to interpret and adapt to the new PSD2 regulations is crucial to grasp the evolution of the structure and operativity of the financial system in the coming years, as well as the role that banks will play in it. Indeed, a positive banks’ attitude to partnership is a crucial factor for developing Open Banking ecosystems and platforms and deserves the attention of researchers. In this paper, we investigate the attitude to partnership of a sample of 45 Italian banks, which allows us to better understand whether there exist conditions for creating Open Banking ecosystems. Furthermore, we explore the economic determinants of banks’ attitudes to partnership and its effect on performance. Results reveal a low current attitude to partnership of Italian banks, a factor that may hinder the formation of Open Banking ecosystems and platforms. The attitude to partnership tends to be low for larger and more capitalised banks, while the opposite occurs for smaller and less capitalised banks, which can be more inclined to participate in Open Banking platforms to compensate for possible constraints in size, resources and human capital. Overall, participation in Open Banking platforms can be justified by the positive effect of attitude to partnership on banks’ performance, as shown by our analysis

Moment Risk Premia and the Cross-Section of Stock Returns

The aim of this paper is to assess the existence and the sign of moment risk premia. To this end, we use methodologies ranging from swap contracts to portfolio sorting techniques in order to obtain robust estimates. We provide empirical evidence for the European stock market for the 2008-2015 time period. Evidence is found of a negative volatility risk premium and a positive skewness risk premium, which are robust to the different techniques and cannot be explained by common risk-factors such as market excess return, size, book-to-market and momentum. Kurtosis risk is not priced in our dataset. Furthermore, we find evidence of a positive risk premium in relation to the firm’s size

Towards a skewness index for the Italian stock market

The present paper is a first attempt of computing a skewness index for the Italian stock market. We compare and contrast different measures of asymmetry of the distribution: an index computed with the CBOE SKEW index formula and two other asymmetry indexes, the SIX indexes, as proposed in Faff and Liu (2014). We analyze the properties of the skewness indexes, by investigating their relationship with model-free implied volatility and the returns on the underlying stock index. Moreover, we assess the profitability of skewness trades and disentangle the contribution of the left and the right part of the risk neutral distribution to the profitability of the latter strategies. The data set consists of FTSE MIB index options data and covers the years 2011-2014, allowing us to address the behavior of skewness measures both in bullish and bearish market periods. We find that the Italian SKEW index presents many advantages with respect to other asymmetry measures: it has a significant contemporaneous relation with both returns, model-free implied volatility and has explanatory power on returns, after controlling for volatility. We find a negative relation between volatility changes and changes in the Italian SKEW index: an increase in model-free implied volatility is associated with a decrease in the Italian SKEW index. Moreover, the SKEW index acts as a measure of market greed, since returns react more negatively to a decrease in the SKEW index (increase in risk neutral skewness) than they react positively to an increase of the latter (decrease in risk neutral skewness). The results of the paper point to the existence of a skewness risk premium in the Italian market. This emerges both from the fact that implied skewness is more negative than physical one in the sample period and from the profitability of skewness trading strategies. In addition, the higher performance of the portfolio composed by only put options indicates that the mispricing of options is mainly focused on the left part of the distribution

The properties of a skewness index and its relation with volatility and returns

The objective of this study is threefold. First, we investigate the properties of a skewness index in order to determine whether it captures fear (fear of losing money), or greed in the market (fear of losing opportunities). Second, we uncover the combined relationship among skewness, volatility and returns. Third, we provide further evidence and possible explanations for the relationship between skewness and future returns, which is highly debated in the literature. The stock market investigated is the Italian one, for which a skewness index is not traded yet. The methodology proposed for the construction of the Italian skewness index can be adopted for other European and non-European countries characterized by a limited number of option prices traded. Several results are obtained. First, we find that in the Italian market the skewness index acts as measures of market greed, as opposed to market fear. Second, for almost 70% of the daily observations, the implied volatility and the skewness index move together but in opposite directions. Increases (decreases) in volatility and decreases (increases) in the skewness index are associated with negative (positive) returns. Last, we find strong evidence that positive returns are reflected both in a decrease in the implied volatility index and in an increase in the skewness index the following day. Implications for investors and policy makers are drawn

Il finanziamento della ricerca clinica in Advanced Therapy Medicinal Products (ATMP): cosa determina l'intervento della Finanza?

Il finanziamento della ricerca medica è un prerequisito per migliorare la salute pubblica e l'inclusione sociale ed economica. Tuttavia, la ricerca medica incontra numerosi ostacoli nell’ottenimento di finanziamenti, che sono ancora più rilevanti per la ricerca su Advanced Therapy Medicinal Products (ATMP). Lo sviluppo clinico degli ATMP presenta sfide peculiari che possono influenzare il processo di valutazione degli investitori e le decisioni di investimento, con conseguente errata o mancata allocazione delle risorse finanziarie da parte di investitori pubblici e privati. L'industria finanziaria ha il potenziale per mobilitare capitali pazienti e superare le difficoltà di finanziamento della ricerca nel campo degli ATMP. Combinando un approccio sia qualitativo che quantitativo, questo studio indaga se e come le istituzioni finanziarie investono nella ricerca medica sugli ATMP e quali sono i fattori trainanti dell'intervento della finanza attraverso un campione di 1.042 studi clinici europei nell’ambito degli ATMP. Attualmente, il settore finanziario supporta indirettamente la ricerca clinica in ATMP. Tale supporto si concretizza attraverso il finanziamento di PMI impegnate in studi clinici in ATMP di Fase I, solitamente più soggette a esclusione o razionamento finanziario. Questo studio, peraltro, dimostra empiricamente che l’investimento in queste PMI è caratterizzato da un processo decisionale razionale. Nello specifico, risultati suggeriscono che le istituzioni finanziarie si concentrano su progetti caratterizzati da minore incertezza, un orizzonte temporale più breve tra investimento e ritorno economico, maggiore fattibilità, maggiore qualità e rigore metodologico e maggiore diversificazione delle malattie target