Musings on Markets · 2016-08-31 · 3564d

Mean Reversion in Market Valuation: Validity and Investment Implications

This article examines mean reversion as a foundational concept in investing, distinguishing between time series and cross-sectional mean reversion while exploring measurement critiques and structural limitations. The author argues that while mean reversion is widely assumed in valuation practices, investors often fail to adequately question its underlying assumptions, leading to potential valuation errors.

3 metrics· Cited 0× in the knowledge base ·Open source ↗

Metrics in this report

Historical Average CAPE Ratio

16ratio

mean

US market 1871-2016

Shiller CAPE Ratio

27.27ratio

point-in-time

US equity market, August 2016

Stock Outperformance Period

20years

minimum

No 20-year period where stocks underperformed, 200+ year history