The hypothesis that earnings are mean reverting was suggested 90 years ago and has been extensively tested since then. Expectations of earnings’ reversion (hereinafter “EMR”) significantly influence pricing shares or forecasts. Despite proposals testing numerous models EMR, there very little inquiry into the meaning those in corporate valuation terms academic literature. Therefore, we see such ...

Do laboratory subjects correctly perceive the dynamics of a mean-reverting time series? In our experiment, subjects receive historical data and make forecasts at different horizons. The time series process that we use features short-run momentum and long-run partial mean reversion. Half of the subjects see a version of this process in which the momentum and partial mean reversion unfold over 10...

We model happiness as an innate incentive mechanism molded by natural selection. The metaphorical objective is to motivate the individual towards seeking goals that favor genetic replication. The end result of this evolutionary process is a mean-reverting happiness function that is based on a contextdependent reference point. This reference point will incorporate all information that is valuabl...

On-line portfolio selection has attracted increasing interests in machine learning and AI communities recently. Empirical evidence show that stock’s high and low prices are temporary and stock price relatives are likely to follow the mean reversion phenomenon. While the existing mean reversion strategies are shown to achieve good empirical performance on many real datasets, they often make the ...

We investigate a generalized stochastic model with the property known as mean reversion, that is, the tendency to relax towards a historical reference level. Besides this property, the dynamics is driven by multiplicative and additive Wiener processes. While the former is modulated by the internal behavior of the system, the latter is purely exogenous. We focus on the stochastic dynamics of vol...

This paper analyzes the mean reversion and unit root properties of general diffusion models and their discrete samples. In particular, we find that the Dickey-Fuller unit root test applied to discrete samples from a diffusion model becomes a test of no mean reversion rather than a unit root, or more generally, nonstationarity in the underlying diffusion. The unit root test has a well defined li...