Options market ambiguity and its information content

We enrich the literature by extracting ambiguity from the options market. Our results show that options market ambiguity contains information regarding future market excess returns, both in the U.S. market and international markets, and the predictive power of options market ambiguity is adjusted by the level of market fear indicated by the implied variance. The findings also show that the discount rate is a critical channel for the forecasting ability of options market ambiguity. The linkages between options market ambiguity and the bond and CDS spreads provide additional evidence for the relationship between ambiguity and the discount rate.