This study examined the impact on future asset returns of information contained
in the implied volatility skew. Future returns are linked to the discrepancy
between call and put volatilities of at-the-money options and to the left side
of the volatility skew, calculated as the difference between out-of-the-money
and at-the-money puts. The findings discourage the use of skew-based measures
for forecasting equity returns without fully parsing the skew into its most
basic portions.