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what is the reversion factor for quantitative equity portfolio investing
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STRATxAI

June 2024 · 5 min read

Reversion Factor

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Educational

What is the reversion factor ?

The general concept of reversion implies that a trend comes to an end and reverses to some degree. This kind of price action can sometimes occur after recent strong performance - as there are always investors who want to lock-in some profits and so sell their investments.

If this type of profit-taking price action starts to accumulate and other investors follow suit, this can lead to reversion. If for example there is no new fundamental news out to help support the stock, then this profit-taking can cause the stock to fall quite quickly as others panic and sell, as they fear they have missed their profit-taking opportunity.

Reversion is a behavioural factor and therefore is not based or backed up by balance sheet data like for example value or quality. Reversion is a price-based signal and construction methods for it differ from user to user.

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July 06, 2022 · 5 min read