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Currency pair mean reversion, equilibrium - exploited in a portfolio

Friday, September 12, 2008

We also have some evidence that the adjustment toward equilibrium levels tends to be non-linear. This means that currencies with larger misalignments are increasingly likely to mean-revert rapidly..

A SQUARE :: 12Sep08 Currency pair mean reversion, equilibrium - exploited in a portfolio
Category	Foreign Exchange
Author	Sona Blessing
Yet, over long horizons, currencies do appear to tend to return towards accepted measures of value. Over short horizons, exchange rates do not appear to exhibit any systematic reaction to changes in economic variables. This stokes analysis based on politics, market psychology and many other factors that can have passing effects. Yet, over long horizons, currencies do appear to tend to return towards accepted measures of value.
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