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Explanation of Mean Regression Phenomenon of Capital Market Volatility

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DOI: 10.25236/ermbfe.2019.014


Wang Shengyu

Corresponding Author

Wang Shengyu


Mean Reversion is an important phenomenon in financial time series. It means that no matter how a time series rises or falls, it will return to its value center (mean) with high probability. Too much rise will spontaneously fall, too much fall will spontaneously rise. The mean here is not only the arithmetic or geometric mean of time series, but an intrinsic central value. Mean regression theory is one of the predictable theories of financial time series, which poses a challenge to the random walk theory. This article will be based on the US capital market, combined with the three major US stock indexes (Dow Jones index, S&P 500 index, Nasdaq index), from the behavior of market participants, and then explains the mean return phenomenon of capital market volatility.


Capital Market; Volatility; Mean Regression Phenomenon