The concept of Mean Reversion in finance postulates that a variety of phenomena, including asset prices and return volatility, will eventually return to their long-term average levels. The mean reversion theory has influenced a variety of investment strategies, including stock trading methods and models for pricing options. Investors who use mean reversion strategies rely on this theory to make decisions about selling assets when their prices have reached new historical highs, and also buying assets at new low-price levelsFor example, if the price of a stock has been trending upward over the past few years, a mean-reversion trader would sell that stock when it hit a new high because it was likely to return to its average level and possibly fall below that point.A stock index futures contract allows an investor to bet that an index will have a certain value at some point in the future futures contract is like a forward contract that obligates the buyer to purchase an index (such as the Standard and Poor's 500) at a certain price and obligates the seller to sell it.
