Abstract
In their 1985 paper ‘Does the stock market overeact?', DeBondt and Thaler explained the idea of mean reversion and how it leads to the Loser’s portfolio of 3 years outperforming the Winner’s portfolio of the same time. Based on mean reversion, this paper illustrates a new stock selection and trend determining approach. The paper uses an innovative approach to convert price performance data into non price ranking data, which is positively tested for mean reversion and stationarity.
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