Short-Term Mean Reversion in Equity ETFs

Exploring the Most Effective Indicators

Introduction

Mean reversion is a well-documented phenomenon in financial markets. While it is observed across various asset classes and time horizons, it is particularly strong in equity markets over short-term horizons. In this blog post, I review key academic findings on mean reversion and test reversal signals on equity ETFs, identifying those that have remained effective in recent years. Overall, short-term mean reversion signals provide attractive risk-adjusted returns on a standalone basis and complement slower-moving signals well. Additionally, they offer valuable diversification benefits, often performing strongly during periods of high market volatility.