Half Life Mean Reversion Interview Guide
Half-life mean reversion interview guide covering half-life intuition, AR(1) estimation, trading horizon, examples, and pitfalls.
Candidates estimating signal decay and spread reversion speed.
Half-life estimates reversion speed
Mean-reversion half-life is the approximate time it takes for a deviation to shrink halfway back toward its reference level.
Estimates are noisy
Half-life estimates depend on model form, sampling frequency, lookback window, outliers, and whether the relationship is stable.
Concrete example
A spread with a three-day estimated half-life may suit shorter holding periods than a spread that reverts over months slowly.
Trading horizon should match decay
If the signal decays slowly, frequent trading may create unnecessary costs; if it decays quickly, slow execution can miss the edge.
Common mistakes
Candidates often treat half-life as fixed. In markets, reversion speed can change across regimes and under stress conditions.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.