Black was right: Price is within a factor 2 of Value
Portfolio Management
2017-11-21 v2 Statistical Finance
Abstract
We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black's intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types of behaviour in financial markets: "chartists", who act as trend followers, and "fundamentalists", who set in when the price is clearly out of line. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance of financial markets.
Cite
@article{arxiv.1711.04717,
title = {Black was right: Price is within a factor 2 of Value},
author = {J. P. Bouchaud and S. Ciliberti and Y. Lempérière and A. Majewski and P. Seager and K. Sin Ronia},
journal= {arXiv preprint arXiv:1711.04717},
year = {2017}
}
Comments
9 pages, 5 figures, some refs. added