What is Volatility Clustering?
Volatility Clustering The empirical tendency for large changes in financial markets to be followed by further large changes, and small changes by small changes, indicating persistence in volatility.
Source: CFA Institute, IFRS Foundation, FASB (GAAP), Basel III Framework
How is “Volatility Clustering” Used in Practice?
Volatility clustering is a fundamental observation in financial econometrics, supporting the use of GARCH models for risk assessment.
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Who Needs to Know This Term?
- Financial Analysts
- Bankers
- Traders
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What is Volatility Clustering?
The empirical tendency for large changes in financial markets to be followed by further large changes, and small changes by small changes, indicating persistence in volatility.
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