Question

Under the efficient markets hypothesis, stock prices take a random walk around their current prices. True/False?

Under the efficient markets hypothesis, stock prices take a random walk around their current prices. True/False?

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Answer #1

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As per Efficient market hypothesis:

The security prices already reflect all the available information.

The efficient market hypothesis says that past price movement, earnings report and volume traded doesn't affect stocks Current price and can't be used to predict the stocks future directions.

In simple words, past performance doesn't guarantee the future performance of the stock price moment. The stock price follows Brownian motion. That is stock price moment is random that's why it's also called as random walk theory.

So in an efficient market “Stock returns follow a random walk process.”

Answer: True.

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