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 the following day.
D) are almost certain to decrease the following day.

Question

Quizplus · Accepted Answer

The fact that the stock price has fallen on 4 consecutive days does not necessarily mean that it cannot be following a random walk. In a random walk, the movements of the stock price are unpredictable and do not follow a pattern. Therefore, it is still possible for the stock price to continue to fall or to rebound on the following days, regardless of the previous trend. Thus, a random walk model does not take into account the past price movements to predict future prices, but rather relies on current market information to forecast future prices. Hence, option B is the best choice.

If the Price of a Stock Falls on 4 Consecutive