The difference between expected and actual stock market volatility, known as the variance risk premium, can predict future stock returns. High premiums tend to lead to high future returns, while low premiums predict low returns. This relationship is strongest over the medium-term, outperforming other popular predictors like P/E ratio and default spread. The study used real-time market data to accurately measure volatility and found that this variance risk premium is a significant factor in explaining stock market returns since the 1990s.