Which of the following statements is correct?
A) If the share market follows a random walk, price changes should be highly correlated.
B) A random walk for share price changes is inconsistent with observed patterns in price changes.
C) If the share market is weak-form efficient, the share prices follow a random walk
D) All of the given answers are correct.

Question

Quizplus · Accepted Answer

The weak-form efficient hypothesis asserts that past price movements and other market data have no predictive value for future price movements. Therefore, if the share market is weak-form efficient, the share prices follow a random walk. Option A is incorrect because, for a random walk, price changes should be uncorrelated, not highly correlated as stated. Option B is also incorrect because a random walk is consistent with observed patterns in price changes, such as volatility clustering. Option D is incorrect because only option C is correct.

Which of the Following Statements Is Correct