T6. Mean Reversion Flashcards
1
Q
What is mean reversion a property of?
A
A stationary AR(1) process.
2
Q
What is the first requirement of mean reversion?
A
Mean is constant and is not a function of time.
3
Q
How does the first requriement cause a restriction?
A
4
Q
What is the second requirement of mean reversion?
A
Variance is constant.
5
Q
How does the second requirement cause a restriction?
A
6
Q
What is the third requirement of mean reversion?
A
7
Q
Equation for the slope of the AR(1) function
A
8
Q
What do we mean by mean regression?
A
Regression toward the mean is a concept that refers to the fact that if one sample of a random variable is extreme, the next sampling of the same random variable is likely to be closer to its mean.
9
Q
A
