Volatility clustering refers to the phenomenon where high-volatility events tend to be followed by more high-volatility events, while low-volatility events are followed by more low-volatility events. This behavior indicates that market volatility is not constant over time and suggests the presence of periods of increased uncertainty or stability. Understanding volatility clustering is crucial for creating accurate financial models and forecasts, as it reveals patterns in market behavior that can impact risk management and investment strategies.
congrats on reading the definition of volatility clustering. now let's actually learn it.