The aim of this paper is to propose a simple and unique measure of risk, that subsumes the conflicting information in volatility and skewness indices and overcomes the limits of these indices in correctly measuring future fear or greed in the market. To this end, we exploit the concept of upside and downside corridor implied volatility, which accounts for the asymmetry in risk-neutral distribution, i.e. the fact that investors like positive spikes in returns, while they dislike negative ones.

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... combine upside and downside implied volatilities in a single asymmetry index called the risk-asymmetry index ( ). The risk-asymmetry index plays a crucial role in predicting future returns, since it subsumes all the information embedded in both the Italian skewness index and the Italian volatility index ( ). The index is the only index that is able to indicate (when reaching very high values) a clearly risky situation for the aggregate stock market, which is detected neither by the index nor by the index.