MEAN REVERSION

  1. A theory that suggests that prices and returns will eventually return towards the average over time, following a significant short-term move. The mean or average can be the historical price average or return, or another relevant average such as economic growth or an industry’s average return.
  2. A purchasing strategy, anchored on the above-mentioned theory, that postulates the prices and returns will move back to the average value. It encourages that purchasing underperforming securities will increase, assuming the market will eventually rebound.

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MEAN RETURN
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