Consider the ARCH model, (sigma_{t}^{2}=1.0+0.8 u_{t-1}^{2}). Explain why this will lead to volatility clustering. What happens when
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Consider the ARCH model, \(\sigma_{t}^{2}=1.0+0.8 u_{t-1}^{2}\). Explain why this will lead to volatility clustering. What happens when \(u_{t-1}^{2}\) is unusually large?
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