Mean reversion in equity markets

Share on linkedin
Chalk logo

In Short

It is widely held in the equity market that the variance ratio decreases with a holding period (i.e. longer holding periods equals lower realised variance).

The variance ratio is defined as the annualised volatility measured over a X-day holding period divided by the annualised volatility measured on a daily basis. This has implications for investors seeking to extract the volatility risk premium (holding short volatility positions) in that hedging should be carried out on a less frequent basis to take advantage of this feature, whilst those with long positions should hedge daily to maximise returns.

To access this White Paper, please fill in the form to be reviewed by our team.

Your privacy
We use cookies to offer you better experience, analyse site traffic, and serve targeted advertisements. By continuing to use this website, you consent to the use of cookies in accordance with our Cookies and Privacy Policy.
Strictly Necessary – cookies that are necessary for the proper functioning of the website.