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Investing

Industry Mean Reversion

Photo of Douglas A. McIntyre
By Douglas A. McIntyre Published

From World Beta

Is it time to buy an asset class or industry when everyone else is puking it up?

Following up on our posts on mean reversion in equity markets and asset classes (here and here), I examine the properties of industry level mean reversion. The data used is yearly industry data from Standard and Poor’s (thanks to Sam Stovall), and includes 40 industries (I only used the ones that had full data history since 1969, eliminating roughly half). This is annual price data no-dividends, pre-GICS from 1972-2001 (needed 3 year ranking to start study).

The study examines industry performance x-years after a negative year. Thus, T-1 is a negative year last year, T-2 is a negative year two years ago, etc. 1,2 represents negative years 1 and 2 years ago, etc.

The simple take-aways are that mean reversion occurs mainly at the 2-year timeframe (which is inconsistent with earlier work that shows equity indexes displayed mean reversion at 3 years as well). The more obvious result is that it pays to buy industries that were down a few years in a row.

Speaking of mean reversion, I’m sure the boys at Goldman are hoping for some performance mean reversion after last month – Global Alpha.

Posted by Mebane Faber

http://worldbeta.blogspot.com/

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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