51:
Mean reversion has the appearance of a more scientific method of choosing stock buy and sell points than charting, because precise numerical values are derived from historical data to identify the buy/sell values, rather than trying to interpret price movements using charts (charting, also known as
40:
is less than the average past price, the security is considered attractive for purchase, with the expectation that the price will rise. When the current market price is above the average past price, the market price is expected to fall. In other words, deviations from the average price are expected
32:
Using mean reversion as a timing strategy involves both the identification of the trading range for a security and the computation of the average price using quantitative methods. Mean reversion is a phenomenon that can be exhibited in a host of financial time-series data, from price data, earnings
69:
A historical mean reversion model does not need to fully incorporate the actual behavior of a security's price. For example, new information may become available that permanently affects the long-term valuation of an underlying stock. In the case of bankruptcy, it may cease to trade completely and
329:
48:
for periods such as 50 and 100 days. While reporting services provide the averages, identifying the high and low prices for the study period is still necessary.
322:
63:, even exchange rates, are observed to be mean reverting; however, this process may last for years and thus is not of value to a short-term investor.
315:
254:
560:
66:
Mean reversion should demonstrate a form of symmetry since a stock may be above its historical average approximately as often as below.
279:
93:, but that periods of lower returns are then followed by compensating periods of higher returns, for example in seasonal businesses.
198:
585:
167:
Mahdavi
Damghani, Babak (2013). "The Non-Misleading Value of Inferred Correlation: An Introduction to the Cointelation Model".
20:
127:
579:
89:
of average annual returns that declines faster than the inverse of the holding period, implying that the process is not a
1062:
1002:
798:
704:
788:
756:
660:
614:
597:
550:
85:
in which "returns can be very unstable in the short run but very stable in the long run." Quantitatively, it is the
573:
567:
102:
74:
56:) although the RSI indicator and Average True Range (ATR) are nascent attempts to capture such systematic pattern.
29:
is a financial term for the assumption that an asset's price will tend to converge to the average price over time.
637:
916:
777:
672:
555:
1108:
804:
942:
751:
196:
Lipe, Robert (1994). "Mean reversion in annual earnings and its implications for security valuation".
1077:
997:
762:
746:
709:
591:
534:
502:
137:
41:
to revert to the average. This expectation serves as the cornerstone of multiple trading strategies.
1007:
952:
876:
736:
666:
495:
468:
856:
1047:
1022:
982:
967:
886:
825:
783:
527:
437:
427:
225:
169:
86:
53:
911:
896:
648:
275:
250:
112:
1012:
932:
728:
609:
485:
404:
360:
338:
215:
207:
178:
1087:
1082:
1017:
992:
927:
901:
881:
840:
835:
830:
815:
810:
698:
632:
624:
512:
399:
132:
107:
155:
1042:
1037:
937:
922:
683:
678:
643:
442:
409:
355:
347:
297:
45:
1102:
906:
891:
866:
820:
772:
475:
432:
419:
370:
117:
78:
60:
229:
1067:
987:
957:
947:
767:
741:
490:
480:
463:
394:
389:
365:
37:
244:
1072:
1052:
1032:
1027:
972:
861:
793:
246:
Optimal Mean
Reversion Trading: Mathematical Analysis And Practical Applications
122:
90:
82:
81:
uses the term "return to the mean" to describe a general principle, a financial
1057:
977:
654:
517:
693:
688:
603:
522:
73:
In finance, the term "mean reversion" has a slightly different meaning from
871:
507:
220:
715:
211:
182:
458:
307:
302:
381:
311:
849:
724:
623:
543:
451:
418:
379:
345:
274:(4th ed.). McGraw–Hill. pp. 13, 28–29.
70:never recover to its former historical average.
298:A Mean-Reversion Theory of Stock-Market Crashes
323:
199:Review of Quantitative Finance and Accounting
8:
303:Reversion to the Mean, Taken to the Extreme
243:Siu-tang, Leung Tim; Xin, Li (2015-11-26).
330:
316:
308:
219:
44:Stock reporting services commonly offer
148:
7:
270:Siegel, Jeremy (November 27, 2007).
75:"return or regression to the mean"
14:
586:Electronic communication network
128:Ornstein–Uhlenbeck process
21:Mean reversion (disambiguation)
1:
580:Multilateral trading facility
1003:Returns-based style analysis
799:Post-modern portfolio theory
705:Security characteristic line
757:Efficient-market hypothesis
661:Capital asset pricing model
598:Straight-through processing
1125:
574:Alternative Trading System
103:Regression toward the mean
18:
638:Arbitrage pricing theory
917:Initial public offering
778:Modern portfolio theory
673:Dividend discount model
556:List of stock exchanges
272:Stocks for the Long Run
805:Random walk hypothesis
33:data, and book value.
943:Market capitalization
752:Dollar cost averaging
763:Fundamental analysis
747:Contrarian investing
710:Security market line
615:Liquidity aggregator
592:Direct market access
503:Quantitative analyst
249:. World Scientific.
19:For other uses, see
1008:Reverse stock split
953:Market manipulation
877:Dual-listed company
737:Algorithmic trading
667:Capital market line
469:Inter-dealer broker
1048:Stock market index
887:Efficient frontier
826:Technical analysis
784:Momentum investing
606:(private exchange)
496:Proprietary trader
438:Shares outstanding
428:Authorised capital
212:10.1007/BF01082663
183:10.1002/wilm.10252
87:standard deviation
54:technical analysis
1096:
1095:
897:Flight-to-quality
649:Buffett indicator
339:Financial markets
256:978-981-4725-93-4
138:Gambler's fallacy
113:Convergence trade
36:When the current
1116:
1013:Share repurchase
725:Trading theories
610:Crossing network
568:Over-the-counter
405:Restricted stock
361:Secondary market
332:
325:
318:
309:
286:
285:
267:
261:
260:
240:
234:
233:
223:
193:
187:
186:
164:
158:
153:
1124:
1123:
1119:
1118:
1117:
1115:
1114:
1113:
1099:
1098:
1097:
1092:
1083:Voting interest
993:Public offering
928:Mandatory offer
902:Government bond
882:DuPont analysis
845:
841:Value investing
836:Value averaging
831:Trend following
816:Style investing
811:Sector rotation
726:
720:
699:Net asset value
625:Stock valuation
619:
539:
447:
414:
400:Preferred stock
375:
341:
336:
294:
289:
282:
269:
268:
264:
257:
242:
241:
237:
195:
194:
190:
166:
165:
161:
154:
150:
146:
133:Trend following
108:Autocorrelation
99:
77:in statistics.
46:moving averages
24:
17:
12:
11:
5:
1122:
1120:
1112:
1111:
1101:
1100:
1094:
1093:
1091:
1090:
1085:
1080:
1075:
1070:
1065:
1060:
1055:
1050:
1045:
1043:Stock exchange
1040:
1038:Stock dilution
1035:
1030:
1025:
1020:
1015:
1010:
1005:
1000:
995:
990:
985:
980:
975:
970:
965:
963:Mean reversion
960:
955:
950:
945:
940:
938:Market anomaly
935:
930:
925:
920:
914:
909:
904:
899:
894:
889:
884:
879:
874:
869:
864:
859:
857:Bid–ask spread
853:
851:
847:
846:
844:
843:
838:
833:
828:
823:
818:
813:
808:
802:
796:
791:
786:
781:
775:
770:
765:
760:
754:
749:
744:
739:
733:
731:
722:
721:
719:
718:
713:
707:
702:
696:
691:
686:
684:Earnings yield
681:
679:Dividend yield
676:
670:
664:
658:
652:
646:
641:
635:
629:
627:
621:
620:
618:
617:
612:
607:
601:
595:
589:
583:
577:
571:
570:(off-exchange)
565:
564:
563:
558:
547:
545:
544:Trading venues
541:
540:
538:
537:
532:
531:
530:
520:
515:
510:
505:
500:
499:
498:
493:
483:
478:
473:
472:
471:
466:
455:
453:
449:
448:
446:
445:
443:Treasury stock
440:
435:
430:
424:
422:
416:
415:
413:
412:
410:Tracking stock
407:
402:
397:
392:
386:
384:
377:
376:
374:
373:
368:
363:
358:
356:Primary market
352:
350:
343:
342:
337:
335:
334:
327:
320:
312:
306:
305:
300:
293:
292:External links
290:
288:
287:
281:978-0071494700
280:
262:
255:
235:
188:
159:
156:Mean reversion
147:
145:
142:
141:
140:
135:
130:
125:
120:
115:
110:
105:
98:
95:
27:Mean reversion
16:Financial term
15:
13:
10:
9:
6:
4:
3:
2:
1121:
1110:
1109:Market trends
1107:
1106:
1104:
1089:
1086:
1084:
1081:
1079:
1076:
1074:
1071:
1069:
1066:
1064:
1061:
1059:
1056:
1054:
1051:
1049:
1046:
1044:
1041:
1039:
1036:
1034:
1031:
1029:
1026:
1024:
1021:
1019:
1018:Short selling
1016:
1014:
1011:
1009:
1006:
1004:
1001:
999:
996:
994:
991:
989:
986:
984:
981:
979:
976:
974:
971:
969:
966:
964:
961:
959:
956:
954:
951:
949:
946:
944:
941:
939:
936:
934:
931:
929:
926:
924:
921:
918:
915:
913:
910:
908:
907:Greenspan put
905:
903:
900:
898:
895:
893:
892:Financial law
890:
888:
885:
883:
880:
878:
875:
873:
870:
868:
867:Cross listing
865:
863:
860:
858:
855:
854:
852:
850:Related terms
848:
842:
839:
837:
834:
832:
829:
827:
824:
822:
821:Swing trading
819:
817:
814:
812:
809:
806:
803:
800:
797:
795:
792:
790:
789:Mosaic theory
787:
785:
782:
779:
776:
774:
773:Market timing
771:
769:
766:
764:
761:
758:
755:
753:
750:
748:
745:
743:
740:
738:
735:
734:
732:
730:
723:
717:
714:
711:
708:
706:
703:
700:
697:
695:
692:
690:
687:
685:
682:
680:
677:
674:
671:
668:
665:
662:
659:
656:
653:
650:
647:
645:
642:
639:
636:
634:
631:
630:
628:
626:
622:
616:
613:
611:
608:
605:
602:
599:
596:
593:
590:
587:
584:
581:
578:
575:
572:
569:
566:
562:
561:Trading hours
559:
557:
554:
553:
552:
549:
548:
546:
542:
536:
533:
529:
526:
525:
524:
521:
519:
516:
514:
511:
509:
506:
504:
501:
497:
494:
492:
489:
488:
487:
484:
482:
479:
477:
476:Broker-dealer
474:
470:
467:
465:
462:
461:
460:
457:
456:
454:
450:
444:
441:
439:
436:
434:
433:Issued shares
431:
429:
426:
425:
423:
421:
420:Share capital
417:
411:
408:
406:
403:
401:
398:
396:
393:
391:
388:
387:
385:
383:
378:
372:
371:Fourth market
369:
367:
364:
362:
359:
357:
354:
353:
351:
349:
344:
340:
333:
328:
326:
321:
319:
314:
313:
310:
304:
301:
299:
296:
295:
291:
283:
277:
273:
266:
263:
258:
252:
248:
247:
239:
236:
231:
227:
222:
221:2027.42/47883
217:
213:
209:
205:
201:
200:
192:
189:
184:
180:
176:
172:
171:
163:
160:
157:
152:
149:
143:
139:
136:
134:
131:
129:
126:
124:
121:
119:
118:Cointegration
116:
114:
111:
109:
106:
104:
101:
100:
96:
94:
92:
88:
84:
80:
79:Jeremy Siegel
76:
71:
67:
64:
62:
61:asset classes
57:
55:
49:
47:
42:
39:
34:
30:
28:
22:
1068:Tender offer
988:Public float
962:
958:Market trend
948:Market depth
768:Growth stock
742:Buy and hold
651:(Cap-to-GDP)
491:Floor trader
481:Market maker
464:Floor broker
452:Participants
395:Golden share
390:Common stock
366:Third market
271:
265:
245:
238:
206:(4): 27–46.
203:
197:
191:
177:(1): 50–61.
174:
168:
162:
151:
72:
68:
65:
58:
50:
43:
38:market price
35:
31:
26:
25:
1073:Uptick rule
1053:Stock split
1033:Squeeze-out
1028:Speculation
973:Open outcry
862:Block trade
794:Pairs trade
123:Pairs trade
91:random walk
83:time series
1078:Volatility
1058:Stock swap
978:Order book
729:strategies
655:Book value
523:Arbitrager
518:Speculator
144:References
694:Fed model
689:EV/EBITDA
604:Dark pool
535:Regulator
380:Types of
346:Types of
1103:Category
1023:Slippage
983:Position
968:Momentum
872:Dividend
551:Exchange
508:Investor
230:54829558
97:See also
912:Haircut
716:T-model
528:Scalper
348:markets
170:Wilmott
933:Margin
801:(PMPT)
663:(CAPM)
513:Hedger
486:Trader
459:Broker
382:stocks
278:
253:
228:
1088:Yield
1063:Trade
998:Rally
919:(IPO)
807:(RMH)
780:(MPT)
759:(EMH)
712:(SML)
701:(NAV)
675:(DDM)
669:(CML)
640:(APT)
633:Alpha
600:(STP)
594:(DMA)
588:(ECN)
582:(MTF)
576:(ATS)
226:S2CID
59:Many
923:Long
727:and
657:(BV)
644:Beta
276:ISBN
251:ISBN
204:1994
175:2013
216:hdl
208:doi
179:doi
1105::
224:.
214:.
202:.
173:.
331:e
324:t
317:v
284:.
259:.
232:.
218::
210::
185:.
181::
23:.
Text is available under the Creative Commons Attribution-ShareAlike License. Additional terms may apply.