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Moderators of the Effectiveness of Daily Follow-Through MR: Volume, Volatility, and Trend Strength

August 21, 2009

ETA: Friday night

Preview: Daily follow-through mean-reversion is still the dominant factor determining next day returns in today’s market. While this status could change in the future, for now there is little evidence of long term deterioration. For a good summary please read Michael Stoke’s post on this subject http://marketsci.wordpress.com/2009/08/10/the-state-of-short-term-mean-reversion-july-2009/.  What is important to understand are the conditions in which daily follow-through is more or less effective. Factors such as money flow, volatility, and the stability of trend or trend strength make sense as potential moderators of this effect. We will dig deep an take a look at each individually as well as in combination to help better our understanding of how today’s market works. It will also help improve predictions based on daily follow-through.

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