What is meant by the expression stock prices follow a "random walk?"
A) The best prediction of next period's price change is last period's price change.
B) Stock price changes do not depend statistically on prior price changes.
C) Stock price changes tend to be positive.
D) Stock price changes do not reflect market information.

Question

Quizplus · Accepted Answer

The "random walk" theory suggests that stock price changes are independent of past price changes and follow a random path, implying that past movements or trends cannot be used to predict future movements.

What Is Meant by the Expression Stock Prices Follow a "Random