Market mean reversion takes longer than expected – CFM quants
Research on how long trends last could help avoid fallout from drawdowns like February’s
Quants at investment firm Capital Fund Management have identified that trending asset prices take years to self-correct – a finding that could help systematic investors navigate market turmoil such as that seen in February.
A forthcoming paper authored by six CFM staff says prices tend to trend over a two-year horizon, during which time they are on average between 50% higher and 33% lower than a notional fundamental value. But mean reversion, where prices come fully into line with their long
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