Toward an Early Warning System of Financial Crises: What Can Index Futures and Options Tell
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چکیده
This research develops an early warning system (EWS) for equity market crises based on multinomial logit models and variables relating to the information content of index futures and options. We show that the information impounded in S&P 500 futures and options are useful as leading indicators of financial crises. The current literature is absent of such studies. Results reveal that models estimated with futures and put options significantly improve the medium-term predictability of equity market crises. Variables that consistently provided information of an impending crisis include: the VIX, open interest, dollar volume, and put option prices.
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