If stock prices follow a random walk,which of the following statement(s)is(are)correct?
A) successive stock price changes are not related
B) the history of stock prices cannot be used to predict future returns to investors
C) Both successive stock price changes are not related and the history of stock prices cannot be used to predict future returns to investors
D) None of the choices are correct.

Question

Quizplus · Accepted Answer

If stock prices follow a random walk, then successive stock price changes are not related, and the history of stock prices cannot be used to predict future returns to investors. Therefore, both statements A and B are correct, making choice C the best answer. Choice D is not correct because a random walk implies that there is no predictable pattern to stock prices, so historical data cannot be used to predict future returns.

If Stock Prices Follow a Random Walk,which of the Following