We decompose UK market volatility into short- and long-run components using EGARCH component model and examine the cross-sectional prices of the two components. Our empirical results suggest that these two components are significantly priced in the cross-section and the negative risk premia are consistent with the existing literature. The Fama-French three-factor model is improved by the inclusion of the two volatility components. However, our ICAPM model using market excess return and the decomposed volatility components as state variables compares inferiorly to the traditional three-factor model.