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Volatility clustering
Volatility Clustering: as noted by Mandelbrot, “large changes tend to be followed by large changes, of either sign, and small changes tend to be followed by small changes.” A quantitative manifestation of this fact is that, while returns themselves are uncorrelated, absolute returns |rt| or their squares display a positive, significant and slowly decaying autocorrelation function: corr(|rt|, |rt+τ |) > 0 for τ ranging from a few minutes to a several weeks.
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