Which one of the following statements concerning the random walk hypothesis is correct?
A)Stock price movements are predictable but only over short periods of time.
B)Random price movements support the weak form efficient market hypothesis.
C)Stock prices in general follow repetitive patterns but the actions of individual investors are random in nature.
D)Random price movements indicate that investors can earn abnormal profits on a routine basis.

Question

Quizplus · Accepted Answer

The random walk hypothesis states that stock prices move randomly and unpredictably over time, making it difficult to predict future price movements. Random price movements support the weak form efficient market hypothesis, which states that past price movements cannot be used to predict future price movements. Option A is incorrect because the random walk hypothesis suggests that stock price movements are not predictable, even over short periods of time. Option C is incorrect because the statement contradicts the random walk hypothesis itself. Option D is incorrect because if prices moved randomly, it would be difficult for investors to consistently earn abnormal profits.

Which One of the Following Statements Concerning the Random Walk