When a stock price fluctuates, but follows no discernible pattern of movement over time, the stock price is said to be a(n)
A) Deviated pattern
B) Dispersed flow
C) Efficient movement
D) Overreaction and correction
E) Random walk

Question

Quizplus · Accepted Answer

A random walk refers to a stock price movement that is unpredictable, and no pattern can be established to predict future movements. In other words, the stock price fluctuates randomly without any apparent direction or trend. The theory of a random walk suggests that the past price movements cannot be used to forecast future movements, and hence a stock's price is determined by the current information available in the market.

When a Stock Price Fluctuates, but Follows No Discernible Pattern