Followers of the random walk hypothesis believe that
A) security analysis is the best tool to utilize when investing in the stock market.
B) the price movements of stocks are unpredictable, and therefore security analysis will not help to predict future market behavior.
C) that traders can earn higher than normal returns by exploiting market anomalies such as the small-firm effect.
D) support levels and resistance lines, when combined with basic chart formations, yield both buy and sell signals.

Question

Quizplus · Accepted Answer

The random walk hypothesis posits that stock prices move randomly and are not influenced by past movements, making it impossible to predict future prices based on historical data. Therefore, it suggests that security analysis and other methods aimed at predicting market behavior are ineffective.

Followers of the Random Walk Hypothesis Believe That