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.
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