This paper investigates the role of volatility risk on stock return predictability specified on two global financial … volatility forecasting measures on future stock returns in four different periods (bear and bull markets). First we find clear … and robust empirical evidence that the implied idiosyncratic volatility is the best stock return predictor for every sub …

effects, i.e., it is possible that the structure of the volatility surface changes without a change in the volatility level … state, I show that this superior performance is directly linked to a third volatility factor which is unrelated to the … volatility level. The second chapter studies the price of the smile, which is defined as the premia for individual option risk …