Your friend claims that,since the market went up seven days in a row recently,there is no way that the market could follow a random walk.Discuss whether your friend's claim is true or false.

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Quizplus · Accepted Answer

The random walk model assumes that successive returns are independent and that the returns are identically distributed over time.A trend in a stock or a market's price does not necessarily mean a deviation from random walk model.It can,and is very natural,for am market to react to change in the underlying fundamentals.Semi-strong form of market efficiency states that the prices adjust to reflect any new information so that excess returns cannot be observed.A seven day uptrend may reflect the increasing risk-return functions of the market.Stock prices essentially follow a random and an unpredictable path.

Your Friend Claims That,since the Market Went Up Seven Days