A RANDOM WALK ON THE STOCK MARKET (COMMENT).
A RANDOM WALK ON THE STOCK MARKET (COMMENT). Annalisa commented that she has the impression regarding the stock exchange that “there appears to be a good deal of randomness as to which stocks do well and which decline.” The comment amazes me because the work related to the Random Walk Hypothesis, the idea that stock prices move randomly, is one of the great achievements in economics in my lifetime. As the wikipedia link points out, a related idea is that successful basketball shots also follow a random walk, a theory that I questioned here. There is a theory that underlies the random walk hypothesis. It is argued that if there were a pattern to stock prices, traders would notice it and make trades until the pattern disappeared.