Title: Asymmetric Connectedness of Fears in the U.S. Financial Sector,
Abstract: We study how shocks to the forward-looking expectations of investors buying
call and put options transmit across the financial system. We introduce a new
contagion measure, called asymmetric fear connectedness (AFC), which captures
the information related to "fear" on the two sides of the options market and
can be used as a forward-looking systemic risk monitoring tool. The decomposed
connectedness measures provide timely predictive information for near-future
macroeconomic conditions and uncertainty indicators, and they contain
additional valuable information that is not included in the aggregate
connectedness measure. The role of a positive/negative "fear"
transmitter/receiver emerges clearly when we focus more closely on
idiosyncratic events for financial institutions. We identify banks that are
predominantly positive/negative receivers of "fear", as well as banks that
positively/negatively transmit "fear" in the financial system.