where and Rf,t denote the market return and the risk-free rate, and denote the market variance and market skewness at time conditional on the information available at time t, and denote the average variance and skewness, and wi, t is the relative market capitalization of firm i. The first two terms of the expression correspond to the three-moment CAPM of Kraus and Litzenberger (1976). The last two terms correspond to the contribution of the average firm-specific expected variance and skewness to the aggregate expected return. The magnitude and significance of the parameters associated with these various predictors in principle depend on investors’ preferences. Additional details on the model behind the predictive regression implied from Eq. (1) can be found in Technical Appendix Section A.1.Driven by the theoretical motivation that individual or idiosyncratic volatility and skewness should be priced, several papers have investigated the ability of these variables to predict the subsequent individual stock return in cross-section regressions.3 To our knowledge, the ability of the average skewness to predict subsequent market return implied by Eq. (1) has not been evaluated. A few previous papers have estimated related time series regressions, with mixed results. Using Standard & Poor’s (S&P) index options, Chang et al. (2011) find a negative and weakly significant effect of physical market skewness on the future monthly return (between 1996 and 2005). Garcia et al. (2014) investigate the ability of cross-sectional variance and a robust measure of skewness based on the quantiles of the cross-sectional distribution of monthly returns to predict the future market returns based on Center for Research in Securities Prices (CRSP) data (between 1963 and 2006). They find that the skewness parameter is insignificant when predicting the monthly value-weighted market return. Stöckl and Kaiser (2016) find that the cross-sectional skewness of the Fama-French portfolios adds to the predictive power of cross-sectional volatility (between 1963 and 2015), although only for short horizons.