Stock prices show surprising patterns, impacting investment strategies for all.
The study looked at whether stock prices tend to revert to their average values over time. By considering breaks in the data, it found that previous studies may have underestimated this mean-reversion effect. When accounting for these breaks, no predictability was found for value-weighted returns, but there was stronger evidence of mean reversion in equally-weighted portfolios. This suggests that stock prices may indeed revert to their average values, especially for equally-weighted portfolios.