# Random walk with drift

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## Random walk with drift

For a random walk with drift, the best forecast of tomorrow's price is today's price plus a drift term. One could think of the drift as measuring a trend in the price (perhaps reflecting long-term inflation). Given the drift is usually assumed to be constant. Related: Mean reversion.
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They showed evidence in favour of Taylor rule models and against the random walk with drift for Brazil and others countries.
In our exercise, we were able to outperform the random walk with drift, but not the random walk without drift.
The modified Theil inequality coefficients are calculated as the ratios of each of the four model's RMSEs relative to the RMSEs of the random walk and random walk with drift models.
A modified Theil inequality coefficient or U-coefficient greater than one indicates that the random walk benchmark or the random walk with drift has smaller absolute forecast errors than the competing methodologies.
In addition, error differential regression results for both the random walk benchmark and the random walk with drift benchmark are compared to the commercial and industrial property values for each of the four forecasting models.
Forecast results for the random walk and random walk with drift benchmarks are found in Tables 1.
Modified Theil Inequality Coefficients: Traditional Income Elasticity Model to Random Walk and Random Walk with Drift
Modified Theil inequality coefficients are calculated as the ratios of the traditional income elasticity model RMSEs to the RMSEs of a random walk benchmark and random walk with drift.
However, the random walk with drift completely out performs the traditional income elasticity model with inequality coefficients being greater than 1.
Differential Error Regression Results: Random Walk and Random Walk with Drift Benchmarks vs.
In addition, differential error regression results for both the random walk benchmark and the random walk with drift benchmark were compared to the traditional income elasticity model.
structural break) and a random walk series, or between a random walk with drift series (a unit root series) with a one-time shock and a trend stationary series with a jump in the level.
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