Market Measures

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Clustering of Large Moves

Market Measures

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“Normal” market moves i.e., less than 1% daily change, are largely independent, meaning that they have the same chance of occurring on any day as they do directly after a “normal” day occurs.

However, when it comes to outliers i.e., 2%+ change, it is multiple times more likely to see another one of those outliers directly after one has just occurred compared to seeing one on a randomly selected day.

This can be interpreted as super high volatility environments having some clustering aspect to them like low vol environments.

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