Mean reversion principle

The presumption of stock traders that markets initially overreact to news and other information, with the effect that price rises are followed by subsequent price falls (and vice versa). Investors should buy securities when prices are still falling and sell them when prices are still rising. The traders basing their investment strategy on the mean reversion principle are known as contrarian strategists. They strongly believe that the apparent mis-pricing in the market will be corrected in the near future.