Option-Implied Attention

We develop a novel approach for the direct extraction of aggregated investor attention and relative risk aversion (RRA) from European option prices. Applying it to China 50ETF options data, we document several noteworthy findings. First, we introduce the option-implied attention (OIA) index, which is more informative than existing market-wide attention proxies. Second, we establish a quadratic relationship between OIA/RRA and volatility risk premium, consistent with theoretical expectations. Finally, we show that as OIA increases, the equity risk premium declines, while the market will witness more extreme returns