Why Traders Have Lost Their Touch by
Satyajit Das
Satyajit Das notes:
“During more
volatile periods, traders can take advantage of mean reversion. If something
has fallen or risen after an external shock, then you buy or sell it assuming
that the value will revert to a long-run average. A subtler version of this
strategy exploits correlation. If something tends to move in a particular way
relative to something else, and then the relationship breaks down, traders assume
parity will eventually be restored.