An Interesting Strategy Involving Mean Reversion

By on September 16, 2010

Mebane Faber at World Beta highlights a strategy capitalizing on mean reversion, the tendency of asset classes to revert to their historical average returns. The strategy involves buying the worst performing asset class from 3 years prior (for example, at the beginning of next year an investor would purchase the worst performing asset class of 2008). Don’t ask me, because I haven’t looked it up.

According to Faber, the strategy outperforms buy and hold by 6 percentage points a year. Faber’s post is short and leaves a lot of questions asked such as what the investor is buying and holding.

Source: World Beta

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