Time series of financial asset returns often exhibit the volatility clustering property: large changes in prices tend to cluster together, resulting in persistence of the amplitudes of price changes. After recalling various methods for quantifying and modeling this phenomenon, we discuss several economic mechanisms which have been proposed to explain the origin of this volatility clustering in terms of behavior of market participants and the news arrival process. A common feature of these models seems to be a switching between low and high activity regimes with heavy-tailed durations of regimes. Finally, we discuss a simple agent-based model which links such variations in market activity to threshold behavior of market participants and suggests a link between volatility clustering and investor inertia. © 2007 Springer Berlin Heidelberg.
Cont, R. (2007). Volatility clustering in financial markets: Empirical facts and agent-based models. In Long Memory in Economics (pp. 289–309). Springer Berlin Heidelberg. https://doi.org/10.1007/978-3-540-34625-8_10