Which one of the following statements concerning the random walk hypothesis is correct?
A) Stock price movements are predictable but only over short periods of time.
B) Stock prices respond to new information.
C) Stock prices in general follow repetitive patterns but the actions of individual investors are random in nature.
D) Random price movements indicate that investors can earn abnormal profits on a routine basis.

Question

Quizplus · Accepted Answer

The random walk hypothesis suggests that stock prices evolve according to a random walk and thus cannot be predicted. It implies that stock prices respond to new information, which is unpredictable, and once this information is public, it is quickly reflected in stock prices. This makes it difficult to consistently achieve abnormal profits through prediction.

Which One of the Following Statements Concerning the Random Walk