To say that stock prices follow a "random walk" is to argue that
A) stock prices rise, then fall, then rise again.
B) stock prices rise, then fall in a predictable fashion.
C) stock prices tend to follow trends.
D) stock prices cannot be predicted based on past trends.

Question

Quizplus · Accepted Answer

The concept of a "random walk" in stock prices suggests that they cannot be accurately predicted based on past trends. This means that choice D is the best option, as it correctly reflects the idea behind the random walk theory. Choices A, B, and C all suggest that there is some level of predictability in stock prices, which goes against the notion of a truly random walk.

To Say That Stock Prices Follow a "Random Walk" Is