leverage increases price fluctuations become heavy tailed and display clustered volatility, similar to what is observed in real … markets. Previous explanations of fat tails and clustered volatility depended on "irrational behavior," such as trend fol …

clustered volatility induced by the wealth dynamics. This is in contrast to previous explanations of fat tails and clustered …. If the funds hold large positions in the asset this can cause substantial losses. This in turns leads to clustered … volatility: Before a crash, when the value funds are dominant, they damp volatility, and after the crash, when they suffer severe …