In a well functioning market, asset prices... A. Should follow a random walk B. Will move...
In a well functioning market, asset prices...
A. Should follow a random walk
B. Will move up and down with fundamentals such as aggregate dividends
C. Should not be predictable
D. Should form a martingale
Homework Answers
the answer is A. Should follow a random walk.
Explanation:
As per the Efficient market hypothesis, in a well functioning
market.
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 the Brownian motion that is a random walk.
We call it random walk theory.
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