Mean reversion: Difference between revisions
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Amwelladmin (talk | contribs) Created page with "{{a|glossary|}}{{d|Mean reversion|/miːn rɪˈvɜːʃᵊn/|n|}} A financial assumption that an asset’s price will tend to converge to its average price over time, or the economic constraints over time that should, rationally control the price. So house prices and incomes should bear a constant relationship over time, and if house prices get out of whack, as they tend to do, the effect will be transitory." |
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{{a|glossary|}}{{d|Mean reversion|/miːn rɪˈvɜːʃᵊn/|n|}} | {{a|glossary|}}{{d|Mean reversion|/miːn rɪˈvɜːʃᵊn/|n|}} | ||
A financial assumption that an asset’s price will tend to converge to its average price over time, or the economic constraints over time that should, rationally control the price. So house prices and incomes should bear a constant relationship over time, and if house prices get out of whack, as they tend to do, the effect will be transitory. | A financial assumption that an asset’s price will tend to converge to its average price over time, or the economic constraints over time that should, rationally control the price. So house prices and incomes should bear a constant relationship over time, and if house prices get out of whack, as they tend to do, the effect will be transitory. | ||
Compare with the related idea of ''regression'' to the mean, which means that after any given outlier in a sample, the next event is likely to be closer to the mean. So if you have a great round of golf, expect your next round to be worse. Yesterday’s rooster is today’s feather duster. | |||
Latest revision as of 09:21, 19 April 2024
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Mean reversion
/miːn rɪˈvɜːʃᵊn/ (n.)
A financial assumption that an asset’s price will tend to converge to its average price over time, or the economic constraints over time that should, rationally control the price. So house prices and incomes should bear a constant relationship over time, and if house prices get out of whack, as they tend to do, the effect will be transitory.
Compare with the related idea of regression to the mean, which means that after any given outlier in a sample, the next event is likely to be closer to the mean. So if you have a great round of golf, expect your next round to be worse. Yesterday’s rooster is today’s feather duster.