Random Walk Theory

Random Walk Theory is the theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.

Random Walk Theory

Random Walk Theory is the theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.

 


Interpretation of Random Walk Theory

The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus cannot be predicted.  However, there are some economists, professors, and investors who believe that the market is predictable to some degree. These people believe that prices may move in trends and that the study of past prices can be used to forecast future price direction.


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