Whether idiosyncratic volatility has increased over time and whether it is a good predictor of future returns is a matter of active debate. We show formally through central limit arguments that there is a direct relationship between the dynamics of the cross-sectional variance of realized...

In this paper, we provide evidence on two alternative mechanisms of interaction between returns and volatilities: the leverage effect and the volatility feedback effect. We stress the importance of distinguishing between realized volatility and implied volatility, and find that implied...