Short-Term Market Risks Implied by Weekly Options

We study short-maturity ("weekly") S&P 500 index options, which provide a direct way to analyze volatility and jump risks. Unlike longer-dated options, weekly options are largely insensitive to the risk of intertemporal shifts in the economic environment. Adopting a novel semi-nonparametric approach, we uncover variation in negative jump tail risk that is not spanned by market volatility and helps predict future equity returns. As such, our approach allows for easy identification of periods of heightened concern about negative tail events that are not always "signaled" by the level of market volatility and elude standard asset pricing models.