Which of the Following Best Defines Mean Reversion

question 20

Multiple Choice

Which of the following best defines mean reversion?

• A)Returns for securities tend to move toward higher performance when returns are examined over shorter time frames
• B)Returns for securities tend to move toward lower performance when returns are examined over shorter time frames
• C)Returns for securities tend to move toward average performance when returns are examined over longer time frames
• D)All of the above
• E)None of the above

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Definitions:

Level 2 Input

Inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, directly or indirectly, such as quoted prices for similar assets or liabilities.

Interest Rates

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the outstanding loan.

Yield Curves

Graphs showing the relationship between interest rates and the time to maturity of debt securities.

Bid-Ask Prices

The prices at which buyers are willing to purchase (bid) and sellers are willing to sell (ask) financial securities in the markets.