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.

POPULAR TERMS

POPULAR ARTICLE