Correlated implied volatility with jump and cross section of stock returns

I derive the option-implied volatility allowing for nonzero correlation between price jump and diffusive risk to examine the information content of implied diffusive, jump risks and their implied covariance in the cross-sectional variation of future returns. This study documents a strong predictive power of realized volatility and correlated implied volatility spread (RV - IVC) in the cross-section of stock returns. The difference of realized volatility with the implied diffusive volatility (RV -sigmaC), jump risk (RV cC) and covariance (RV ICov) can forecast future returns. These RV - sigmaC and RV - cC anomalies are robustly persistent even after controlling for market, size, book-to-market value, momentum and liquidity factors