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We opine that mean reversion will occur as investible monies start to rotate into the ready space, to a point where the price gap reaches mean historical levels.
But a collective and costly form of amnesia led investors to forget about simple mean reversion.
USD-JPY had been looking ripe for some mean reversion after a three-week down phase, and analysts see scope for more, initially targeting the 20-day moving average at 110.
As a long term trend of PE mean reversion in process, the market still seems to grapple with low investor demand who seems to anticipate the onslaught from macro-economic imbalances but not quite sure when and whether this will happen.
This takes real time FX volumes and prices and employs methods like mean reversion and trend following.
While such dramatic transitions are relatively rare, they contribute to the overall pattern of neighborhood mean reversion.
But emerging market stocks can make for a good contrarian investment owing to superior earnings projections, low valuations and the potential for mean reversion after years of underperformance.
Mean reversion can be mean, and it's a powerful force in markets.
Mean reversion suggests again that the relationship is expected to normalize, suggesting an imminent rise in real estate prices.
Boyle (1988), on the other hand, introduced the bivariate binomial tree concept, which was followed by Nelson and Ramaswamy (1990), who presented a binomial sequence method in a comprehensive model that can be used in stochastic processes which follow either a GBM or a Mean Reversion Process (MRP).
Optimal Mean Reversion Trading: Mathematical Analysis and Practical Applications
Stein [4] developed O-U (Ornstein-Uhlenbeck) process with mean reversion to describe variance of assets return.