Regression to the Mean and Mean Reversion in Futures Markets

Posted: 14 May 2000

See all articles by Robert W. Kolb

Robert W. Kolb

Loyola University of Chicago - Department of Finance

John Okunev

Bond University Business School

Abstract

This paper clarifies the distinction between regression to the mean and mean reversion. The concept of regression to the mean has been recognized in finance for more than two decades. More recently, mean reversion has received considerable attention in the finance literature. In addition, it has also been observed empirically that more extreme initial observation lead to greater subsequent reversals. Although some researchers have explained this behavior in terms of investor overreaction, this paper presents an alternative interpretation that relies solely on the statistical properties of the random variable under study.

JEL Classification: C50, G12

Suggested Citation

Kolb, Robert W. and Okunev, John, Regression to the Mean and Mean Reversion in Futures Markets. Available at SSRN: https://ssrn.com/abstract=5374

Robert W. Kolb (Contact Author)

Loyola University of Chicago - Department of Finance

820 North Michigan Avenue
Chicago, IL 60611
United States

HOME PAGE: http://bobkolb.com

John Okunev

Bond University Business School ( email )

Gold Coast
Australia

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