Finance glossary
Mean Reversion
Definition
The tendency of prices to return toward their long-term average.
Mean reversion is the idea that extreme prices and returns tend to drift back toward their historical average over time. It underlies many contrarian and value strategies, though timing is uncertain and a series of extremes can persist longer than expected.
In a sentence
Betting on mean reversion, the contrarian bought the beaten-down stock expecting it to drift back toward its average.
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