One of the theories on the determination of,and change in the value of,shares and other securities is the random walk hypothesis.Which of the following statements in relation to the random walk hypothesis is correct?
A) The trend of new information into the market may be consistently good or consistently bad over time.
B) If the price of a share rose in one period, there is a higher probability that it will rise again in the next period.
C) Share price reflects the share's intrinsic value, based on the latest information set relevant to current and future prospects.
D) The history of previous price movements contains valuable information on likely future price movements.

Question

Quizplus · Accepted Answer

The random walk hypothesis suggests that share prices reflect their intrinsic values, based on the latest available information set. This means that prices should follow a random pattern as new information enters the market about a company's future prospects. Therefore, choice C is the correct statement. Choices A, B, and D are incorrect because they suggest that there may be patterns or predictability in stock prices, which contradicts the assumptions of the random walk hypothesis.

One of the Theories on the Determination Of,and Change in the Value