New model predicts stock market volatility clusters in emerging markets.
The RS-Beta-t-EGARCH model was created to predict stock market volatility by incorporating random shifts. This model can better explain why financial markets have such high volatility. It also helps identify when volatility tends to cluster together. When applied to South American emerging markets, the model accurately predicted major market disturbances. Simulations showed that the model accurately mimics real market data. Overall, the new model provides better forecasts for stock market volatility.