Category Archives for "Mean Reversion"

How much does not having survivorship free data change test results?

Over the last month several people have asked me how important it is to have survivorship-free data. For any researcher this is an important question to understand how the different data can change your results. We will be exploring three potential data issues: as traded prices, delisted stocks (survivorship-bias), and historical index constituents (pre-inclusion bias).

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Is mean reversion dead?

My great friend and expert trader Steven Gabriel often pushes me to answer this question; and prove it. We, perhaps too fondly, remember the great mean reversion trading years of 2005, 2006, 2008, 2009, 2010. We discussed this topic often in 2011 and 2012. Steven Gabriel would often call me on days when in the past, we would both be making 5+% on a day that our stocks would be mean reverting, but now we would be making a mere 1%.

My theory is that mean reversion is in hibernation waiting to come back; or said another way, mean reversion is simply mean reverting. I think that when too many people trade mean reversion, the space gets crowded and we see fewer winning trades and smaller returns. However, this has always been conjecture never backed up with numbers. Are we really seeing fewer trades? Smaller returns? Time to do the research and see what the numbers tell us.

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