The random walk hypothesis is the theory that stock market prices are a random series of price movements that can't be predicted. The hypothesis is consistent with well accepted economic principles such as the efficient market theory. Nevertheless, the random walk hypothesis is contested by a wide variety of competing theories that suggest that fundamentals, patterns or trends can be useful in predicting market prices.
A random walk is a mathematical model that describes a path of random steps such as that of a foraging animal. Stock markets have a tendency to go up with time and are therefore not completely random in nature. Nevertheless, a random walk is useful as an analogy as it is extremely difficult or impossible to predict prices in the short to medium term.
Thinking
This is the complete list of articles we have written about thinking.
If you enjoyed this page, please consider bookmarking Simplicable.
© 20102023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.
