Random walk theory

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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 theory.

The random walk theory holds that it is futile to try to predict changes in stock prices.

Advocates of the theory base their assertion on the belief that stock prices react to information as it becomes known, and that, because of the randomness of this information, prices themselves change as randomly as the path of a wandering person's walk.

This theory stands in opposition to technical analysis, whose practitioners believe you can predict future stock behavior based on statistical patterns of prior performance.

References in classic literature ?
I received her as politely as I could, because I think she was sorry she dared me to walk a ridgepole.
In my afternoon walk I would fain forget all my morning occupations and my obligations to Society.
There is in fact a sort of harmony discoverable between the capabilities of the landscape within a circle of ten miles' radius, or the limits of an afternoon walk, and the threescore years and ten of human life.
I can easily walk ten, fifteen, twenty, any number of miles, commencing at my own door, without going by any house, without crossing a road except where the fox and the mink do: first along by the river, and then the brook, and then the meadow and the woodside.
Some do not walk at all; others walk in the highways; a few walk across lots.
I turn round and round irresolute sometimes for a quarter of an hour, until I decide, for a thousandth time, that I will walk into the southwest or west.
I know not how significant it is, or how far it is an evidence of singularity, that an individual should thus consent in his pettiest walk with the general movement of the race; but I know that something akin to the migratory instinct in birds and quadrupeds--which, in some instances, is known to have affected the squirrel tribe, impelling them to a general and mysterious movement, in which they were seen, say some, crossing the broadest rivers, each on its particular chip, with its tail raised for a sail, and bridging narrower streams with their dead--that something like the furor which affects the domestic cattle in the spring, and which is referred to a worm in their tails,--affects both nations and individuals, either perennially or from time to time.
Front yards are not made to walk in, but, at most, through, and you could go in the back way.
He makes for the better-lighted streets, and resolves as he walks on to say nothing of this to-night, but to mention it to Jack (who alone calls him Ned), as an odd coincidence, to-morrow; of course only as a coincidence, and not as anything better worth remembering.
He has another mile or so, to linger out before the dinner-hour; and, when he walks over the bridge and by the river, the woman's words are in the rising wind, in the angry sky, in the troubled water, in the flickering lights.
He sings, in a low voice and with delicate expression, as he walks along.
It's a little tiresome to walk backward, but that is the only way to pass this part of the road, which has a trick of sliding back and carrying with it anyone who is walking upon it.