Random Walk Theories of the Stock Market

Abstract

If one could predict future prices of var10us stocks in the stock market, one could make a fortune. Because of this, many theories dealing with future stock price changes have been developed, but no single theory has been completely successful at pred1ct1ng these future price changes. One of theories is the "random walk" theory which grew out of stat1stical research on pr1ce changes. Today, it 1s a major theory of the stock market. The term "random walk" has come to have many mean1ngs when used in connect1on with stock pr1ces, because s1nce 1900, many different theor1es have been labeled "random walk." A brief histor1cal. sketch may be appropriate to describe some of these theories.