We find that the set of lagged innovations in average stock volatility gives more accurate forecasts of the one-month-ahead conditional variance of excess market returns (e.g., the adjusted [R.sub.2] of 0.3341 for innovations in EWAV, and that of 0.4189 for innovations in VWAV) than does the value- or equal-weighted average idiosyncratic volatility (e.g., adjusted [R.sub.2] of 0.2684 lbr EWAIV, and that of 0.1559 for VWAIV).
EWMV, VWMV, EWAV, VWAV, EWIV, and VWIV denote monthly CRSP index equal- and value-weighted average market volatility, average stock volatility and idiosyncratic volatility, respectively, which we calculate using daily data.