Non-Random Walk Theory

• Economists Andrew W. Lo and A. Craig MacKinlay criticized Malkiel's Random Walk theory in their book, A Non-Random Walk Down Wall Street

Criticisms

• Short Term Momentum, Including Underreaction to New Information

Lo and MacKinley point to the presence of some "momentum" in short-run stock prices. Momentum is a series of repeated price changes in the same direction. Lo and MacKinley also point to the under reaction to new information. This means that the stock is undervalued and that you can profit off of new information.

Malkiel's Response

The statistical dependencies giving rise to momentum are extremely small and unlikely to provide the opportunity to achieve excess gains.