The statement that stock prices follow a random walk implies that
I.the correlation coefficient between successive price changes (auto correlation)is not significantly different from zero;
II.successive price changes are positively related;
III.successive price changes are negatively related;
IV.the autocorrelation coefficient is positive
A)I only
B)II only
C)II and III only
D)IV only

Question

Quizplus · Accepted Answer

The statement that stock prices follow a random walk implies that the correlation coefficient between successive price changes (auto correlation) is not significantly different from zero. This means that there is no predictable pattern or trend in the movement of stock prices and that future price changes cannot be predicted based on past price movements. The other options (II, III, IV) suggest a positive or negative relationship between successive price changes, which would violate the assumption of a random walk.

The Statement That Stock Prices Follow a Random Walk Implies