In China, market predictions of economic disaster have zero power to actually predict what’s going to happen.
SSRN · March 18, 2026 · 6429621
The Takeaway
Normally, stock market fear is a leading indicator of a recession. In this case, however, the government uses market panic as a 'tripwire,' immediately launching massive fiscal interventions that truncate the risk, meaning the more the market fears a crash, the less likely it is to happen.
From the abstract
We extract a time-varying physical disaster probability (ˆpt) from deep out-of-themoney put options on the SSE 50 ETF (2015–2024) in China. Consistent with rare-disaster theory, ˆpt strongly captures contemporaneous downside economic conditions. However, we document a “Predictive Disconnect”: option-implied disaster probability exhibits negligible predictive power for subsequent GDP growth, challenging the baseline prediction that higher disaster risk should depress future output. We argue that