Mean Reversion Half-Life

Mean reversion half-life quantifies the persistence and decay trajectory of insider-activity signals and price anomalies by estimating how quickly an excess return or deviation from fundamental value reverts toward equilibrium. In a quant scoring framework, this metric serves as a critical indicator of signal quality and edge persistence, enabling portfolio managers to optimize entry and exit timing while accounting for temporal decay in predictive power. A shorter half-life suggests rapid mean reversion and signal decay, whereas a longer half-life indicates sustained mispricings and more durable trading advantages.

Operationally, mean reversion half-life is derived by fitting an exponential decay model to the residual series of insider trades or sentiment signals, isolating the decay constant that characterizes how quickly the signal's predictive capacity diminishes. Within insider-trading surveillance, signals with measurable half-lives enable risk managers to enforce cooling-off periods and pre-clearance windows proportional to the information edge's durability. Integration with composite conviction indices and signal persistence metrics refines position sizing and conviction-score clustering, ensuring that insider-activity detections are weighted according to their temporal relevance and mean reversion velocity.