Which of the following is true?
A) A random walk for stock price changes is inconsistent with observed patterns in price changes.
B) If the stock market follows a random walk, price changes should be highly correlated.
C) If the stock market is weak form efficient, then stock prices follow a random walk.
D) All of these.
E) Both If the stock market follows a random walk, price changes should be highly correlated; and If the stock market is weak form efficient, then stock prices follow a random walk.

Question

Quizplus · Accepted Answer

The statement "If the stock market is weak form efficient, then stock prices follow a random walk" is true, while the other statements are false. A random walk implies that price changes are independent of each other and unpredictable, which is inconsistent with observed patterns in stock price changes. Additionally, high correlations between price changes would indicate a predictability that is not consistent with a random walk process. However, if the stock market is weak form efficient, then past price data cannot be used to predict future price movements, which is consistent with a random walk process.

Which of the Following Is True