ABSTRACT This study parameterizes extreme comovement between options market ambiguity (OMA) and implied volatility using the Symmetrized Joe–Clayton copula model and a recursive estimation approach. The empirical results demonstrate that acceleration in extreme comovement (AEC) contains incremental information about future market uncertainty beyond that captured by OMA and implied volatility. Both in‐sample and out‐of‐sample predictive tests confirm that AEC anticipates impending market declines. Incorporation of this signal into investment strategies yields significantly better performance than the traditional buy‐and‐hold strategy and the strategies signaled by OMA and implied volatility, providing extra evidence that AEC is a leading indicator of market slumps.
Chen et al. (Sun,) studied this question.