A RANDOM WALK ON THE STOCK MARKET (COMMENT). Annalisa commented that she has the impression regarding the stock exchange that “there appears to be a good deal of randomness as to which stocks do well and which decline.” The comment amazes me because the work related to the Random Walk Hypothesis, the idea that stock prices move randomly, is one of the great achievements in economics in my lifetime. As the wikipedia link points out, a related idea is that successful basketball shots also follow a random walk, a theory that I questioned here. There is a theory that underlies the random walk hypothesis. It is argued that if there were a pattern to stock prices, traders would notice it and make trades until the pattern disappeared.
[...] Cowen’s point about the “first mover advantage.” Kids, Annalisa made the point some time ago that a lot of the movements on financial markets seem random. I commented that the [...]
[...] MCARDLE ASKS: “HOW CAN MARKETS BE EFFICIENT IF PEOPLE ARE SUCH MORONS?” Kids, I posted here on the theory of efficient markets in response to Annalisa’s comment that, “There [...]
[...] edition: A RANDOM WALK DOWN WALL STREET. (Annalisa commented on the randomness of the stock market here.) In today’s Wall Street Journal, Malkiel writes that investors should not try to time the [...]
[...] A PATTERN IN RANDOMNESS. I posted here on the Random Walk Hypothesis in response to Annalisa’s comment that stock prices seem to move [...]
[...] THINGS DON’T GO STRAIGHT UP. Kids, as Annalisa noted some time ago, stock prices and profits and other financial variables don’t usually go [...]
[...] WALKS? I posted here a couple years ago on a comment by Annalisa that “there appears to be a good deal of randomness [...]