Emotional extremes do not occur randomly — they cluster. Large price moves tend to be followed by more large moves, and calm periods by calm periods. This is volatility clustering, first formalized by Mandelbrot (1963) and later modeled by GARCH (Engle, 1982).

For a market psychologist, this matters because fear and greed are self-reinforcing: a panic day raises realized volatility, which raises margin requirements, which forces more selling, which raises volatility again.

Realized vol = standard deviation of log returns, annualized by √252
VIX is the 30-day implied vol of S&P 500 options — the market's fear forecast
Vol-of-vol spikes when even the fear gauge becomes unpredictable

Regime	Realized Vol	Typical Emotion
Calm	8–12%	Complacency
Normal	13–20%	Balanced
Stress	21–40%	Fear
Crisis	40%+	Panic / capitulation