Tag Archives: regression to mean

In the investment management process...[it is important to] actively monitor both short- and long-term cycles...in order to manage expectations based on historical patterns...[as well as] oscillators - diagnostic tools that help us measure a security’s upward and downward price volatility - but to understand how oscillators work, though, you first need to become familiar with standard deviation and mean reversion. In this article, we do just that.

The S&P 500 is considerably overvalued - somewhere in the range of 34% to 61% - depending on which of 4 market valuation indicators are used and whether the valuation is based on the arithmetric or geometric mean of each. While these findings are not useful as short-term signals of market direction...they play a role in framing longer-term expectations of investment returns and suggest a cautious outlook and guarded expectations. [Here are the details.] Words: 676