Mean reversion is a defining characteristic of stock market returns over the long haul. More often than not, the excesses of fear and greed are brought in line by the pendulum like effect of valuation. This is not to suggest that its impact is either timely or evenly distributed across categories. Yet, mean reversion is the only antidote to a breakdown in market behaviour driven by animal instincts. However, the faithful are often done in when trying to figure out the “right” mean!
(This story appears in the 14 August, 2009 issue of Forbes India. To visit our Archives, click here.)