random walk


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Random walk

Theory that stock price changes from day to day are accidental or haphazard; changes are independent of each other and have the same probability distribution. For a simple random walk, the best forecast of tomorrow's price is today's price. Related: Mean reversion.

Random Walk Theory

An investment philosophy holding that security prices are completely unpredictable, especially in the short term. Random walk theory states that both fundamental analysis and technical analysis are wastes of time, as securities behave randomly. Thus, the theory holds that it is impossible to outperform the market by choosing the "correct" securities; it is only possible to outperform the market by taking on additional risk. Critics of random walk theory contend that empirical evidence shows that security prices do indeed follow particular trends that can be predicted with a fair degree of accuracy. The theory originated in 1973 with the book, A Random Walk Down Wall Street. See also: Efficient markets theory.

random walk

see EFFICIENT-MARKETS HYPOTHESIS.
References in periodicals archive ?
where, b represents the random walk noise amplitude, N the number of measurements and T is the total time span.
We compared the movements of Aquilonastra anomala sea stars to three random walk models (Brownian motion, Levy walks, and correlated random walks) by examining the sea stars' step length and turn angle distributions.
CR_WP: The co-ranking word preference includes two random walk algorithm which incorporates into graph based co-ranking approach.
Since each random walk terminates after a few walks (shorter than cover time), storage nodes that far away from the data nodes might not be visited.
In addition to the aforementioned random walk models, this study uses vector autoregressive models with and without an error correction mechanism in order to construct forecasts.
The results showed that there existed weak form of efficiency for monthly returns but fail to exhibit characteristics of random walk in daily and weekly returns.
Consequently, the statistical manner to express the market efficiency is the random walk hypothesis (RWH), which can be formulated in three different sub-hypothesis, respectively: independently and identically distributed increments, independent increments, uncorrelated increments.
10] the random walk on (X, E) is transient if and only if the random walk on (X, E') is transient.
Urrutia (1995), argued for the rejection of the random walk hypothesis when using the variance ratio test to study market efficiency in four major Latin American stock markets (Argentina, Brazil, Chile, and Mexico).
A random walk is one in which future steps or directions cannot be predicted on the basis of past history.
After reading "A Random Walk Down Wall Street" by Burton Gordon Malkiel in college, Rock Senavinin knew he wanted to work in investment management.