Black Was Right: Price Is Within a Factor 2 of Value

9 Pages Posted: 16 Nov 2017 Last revised: 19 Nov 2017

See all articles by Jean-Philippe Bouchaud

Jean-Philippe Bouchaud

Capital Fund Management

Stefano Ciliberti

Capital Fund Management

Yves Lemperiere

Capital Fund Management

Adam Majewski

Capital Fund Management

Philip Seager

Capital Fund Management

Kevin Sin Ronia

Capital Fund Management

Date Written: November 17, 2017

Abstract

We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black’s intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the existence of two types of behaviour in financial markets: “chartists”, who act as trend followers, and “fundamentalists”, who set in when the price is clearly out of line. Mean-reversion is a self-correcting mechanism, tempering (albeit only weakly) the exuberance of financial markets.

Keywords: Trend Following, Mean-Reversion, Market Anomalies, Behavioral Biases

JEL Classification: G2, G11, G12, G14

Suggested Citation

Bouchaud, Jean-Philippe and Ciliberti, Stefano and Lemperiere, Yves and Majewski, Adam and Seager, Philip and Sin Ronia, Kevin, Black Was Right: Price Is Within a Factor 2 of Value (November 17, 2017). Available at SSRN: https://ssrn.com/abstract=3070850 or http://dx.doi.org/10.2139/ssrn.3070850

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

Stefano Ciliberti

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Yves Lemperiere

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Adam Majewski (Contact Author)

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Philip Seager

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Kevin Sin Ronia

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

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