What Goes into Risk-Neutral Volatility? Empirical Estimates of Risk and Subjective Risk Preferences

RND volatility correlates somewhat with realized volatility; forecasts of realized volatility from a GARCH model are highly significant in explaining RND volatility; non-BS factors such as sentiment and confidence are important determinants of option prices; historical volatility does not contribute strongly to forecasting volatility; the larger and more significant coefficients in the RND volatility regressions suggest that empirical (P Measure) volatility is correlated with returns, but transferring the P Measure into the Q Measure increases the effect; recent wide trading ranges seem to be connected with investors' and market makers' risk aversion, rather than to their objective forecasts of future volatility; high market volatility occurs when consumer and investor sentiment is low.

FIGLEWSKI, S. (2016). What Goes into Risk-Neutral Volatility? Empirical Estimates of Risk and Subjective Risk Preferences. Journal Of Portfolio Management, 43(1), 29-42.