Question

According to the efficient markets hypothesis are stock prices predictable? Why? And what is a random...

According to the efficient markets hypothesis are stock prices predictable? Why? And what is a random walk?

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Answer #1

As per the efficient market hypothesis, stock prices reflect all public and private information. This ensures that the stock prices are predictable since the investors are able to closely predict the risk premium and movements in the underlying value of the stock.

The random walk theory is the reverse and outdated theory wherein the past movements cannot be used to predict the future value of stock. Thus stocks are expected to take a random path. It suggests that only new information will move the stock prices significantly

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