Random Walk: Difference between revisions
From Dickinson College Wiki
Jump to navigationJump to search
No edit summary |
|||
| Line 1: | Line 1: | ||
=A Random Walk Down Wall Street= | =A Random Walk Down Wall Street= | ||
[[Image:A%20Random%20Walk%20Down%20Wall%20Street20060913034019.jpg]] | ::[[Image:A%20Random%20Walk%20Down%20Wall%20Street20060913034019.jpg]] | ||
*'''A random walk''' is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. This idea of a random walk is used in the Efficient Market Hypothesis. | *'''A random walk''' is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. This idea of a random walk is used in the Efficient Market Hypothesis. | ||
*Taken to its logical extreme, it means that a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by the experts. | *Taken to its logical extreme, it means that a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by the experts. | ||
[[Image:monkey.jpg]] | ::[[Image:monkey.jpg]] | ||
[[Efficient-Market Hypothesis]] | [[Efficient-Market Hypothesis]] | ||
Revision as of 22:34, 30 April 2007
A Random Walk Down Wall Street
- A random walk is one in which future steps or directions cannot be predicted on the basis of past actions. When the term is applied to the stock market, it means that short-run changes in stock prices cannot be predicted. This idea of a random walk is used in the Efficient Market Hypothesis.
- Taken to its logical extreme, it means that a blindfolded monkey throwing darts at a newspaper's financial pages could select a portfolio that would do just as well as one carefully selected by the experts.
