Question: Suppose mean reversion exists for a variable with a value of 30 at time period t-1. Assume that the long-run mean value for this variable

  1. Suppose mean reversion exists for a variable with a value of 30 at time period t-1. Assume that the long-run mean value for this variable is 40 and ignore the stochastic term included in most regressions of financial data. What is the expected change in value of the variable for the next period if the mean reversion rate is 0.4?
  1. -10.
  2. -4.
  3. 4
  4. 10.

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