The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus the prices of the stock market cannot be predicted. It is consistent with the efficient-market hypothesis.
The concept can be traced to French broker Jules Regnault who published a book in 1863, and then to French mathematician Louis Bachelier whose Ph.D. dissertation titled "The Theory of Speculation" (1900) included some remarkable insights and commentary. Same ideas were later developed by MIT Sloan School of Management professor Paul Cootner in his 1964 book The Random Character of Stock Market Prices. The term was popularized by the 1973 book, A Random Walk Down Wall Street, by Burton Malkiel, a Professor of Economics at Princeton University, and was used earlier in Eugene Fama's 1965 article "Random Walks In Stock Market Prices", which was a less technical version of his Ph.D. thesis. The theory that stock prices move randomly was earlier proposed by Maurice Kendall in his 1953 paper, The Analytics of Economic Time Series, Part 1: Prices.
Read more about Random Walk Hypothesis: Testing The Hypothesis, A Non-random Walk Hypothesis
Famous quotes containing the words random, walk and/or hypothesis:
“And catch the gleaming of a random light,
That tells me that the ship I seek is passing, passing.”
—Paul Laurence Dunbar (1872–1906)
“Does any here know me? This is not Lear.
Does Lear walk thus? speak thus? Where are his eyes?”
—William Shakespeare (1564–1616)
“The hypothesis I wish to advance is that ... the language of morality is in ... grave disorder.... What we possess, if this is true, are the fragments of a conceptual scheme, parts of which now lack those contexts from which their significance derived. We possess indeed simulacra of morality, we continue to use many of the key expressions. But we have—very largely if not entirely—lost our comprehension, both theoretical and practical, of morality.”
—Alasdair Chalmers MacIntyre (b. 1929)