If the price of a stock falls on 4 consecutive days of trading,then stock prices:
A) cannot be following a random walk.
B) can still be following a random walk.
C) are almost certain to increase today.
D) are almost certain to decrease today.

Question

Quizplus · Accepted Answer

A random walk is a mathematical model that assumes future movements of a stock price are unpredictable and random, which means that a series of consecutive price drops does not necessarily mean the stock is deviating from a random walk. In fact, random walks often feature clusters of positive and negative price changes. Therefore, option B is correct. Options A, C, and D are all incorrect because they make assumptions that are not necessarily true in the context of a random walk.

If the Price of a Stock Falls on 4 Consecutive