Hello Andres,

I'm glad that you find this article useful. In answer to your question, I was referring to step #2 in rescaled range analysis where the analyst selects her/his ranges. This choice is arbitrary and is up to the analyst.

I said "two years" in answer to the above question from Olivia because if an investor has a two year investment time horizon that means that their unbiased estimator of the future will be the preceding two years worth of data for the time series on which they want to conduct a rescaled range analysis. If your investment time horizon is 5 years then the unbiased estimate is the preceding 5 years of data. And so on.

The interpretation of the Hurst exponent is as you described it. If for the preceding two years an asset's price has been down, and the Hurst exponent indicates mean reversion (i.e. H 0.50), then an analyst would expect the price to move back to its long-term average.

As for your question about "quicker" - that is, if it is already mean reverting, do you expect it to revert back more quickly. I have no idea! : ) Given that the original use of rescaled range analysis (RRA) was to build a dam once (i.e. the Aswan) that could contend with any scenario thrown at it, I would have to say that RRA does not say anything about second order/second moment/accelerating influences. I do not know of a study that addresses these issues. Perhaps someone else on this forum knows the answer.

Yours, in service,

Jason