Realized Volatility Clustering

Realized Volatility Clustering describes the empirical observation that large price changes in financial assets tend to be followed by large price changes, and small changes by small changes. This phenomenon suggests that market participants react to new information in waves, leading to periods of intense activity followed by relative calm.

In the crypto domain, this clustering is often exacerbated by liquidations, stop-loss cascades, and algorithmic feedback loops. Understanding this behavior is essential for risk managers who must prepare for sudden spikes in volatility that can quickly overwhelm margin requirements.

It challenges the assumption of independent and identically distributed returns, requiring more robust risk modeling.