Random walk hypothesis - Wikipedia

In this excerpt from The Wave Principle of Human Social Behavior and the New Science of Socionomics, author Robert Prechter dismantles the popular -- yet problematic – random walk theory, Wall Street's preeminent view of market behavior. Prechter also proposes his own, carefully thought-out solution -- see if you agree.

The Random Walk and the Efficient Market Hypotheses

Investor Home - The Efficient Market Hypothesis and Random Walk Theory

Random Walk Theory | Efficient Market Hypothesis

This fact proves that the champions of EMH and random walk do not know, despite their claims, that markets are random. The failure of EMH researchers' statistical applications successfully to determine randomness in utterly determined chaotic data series invalidates the empirical basis of their work. This book, I hope, invalidates the theoretical basis of it, the idea that aggregate financial market behavior is based upon the efficient, rational processing (error #1) of extramarket information (error #2).

What Is the Random Walk Hypothesis? -- The Motley Fool

For years, some theoreticians have argued that stock price movements are random. Their assertion under the Efficient Market Hypothesis is that all investors make informed and rational decisions, weighing more or less identically the meaning of various events and conditions that affect markets and immediately adjusting investment values accordingly. Since no one can predict random outside forces, markets fluctuate randomly. Statisticians have run tests on financial market prices to demonstrate that they follow a "random walk" and are therefore unpredictable. "For two decades," said Fortune magazine in 1988, "finance professors have taught EMH as if it were as indisputable as the laws of gravity."

This lead to Random Walk Theory which says stock market prices walks randomly. So how it will help the traders?

Random Walk Theory and the Weak-Form Efficiency of …

Random walk is a stock market theory that states that the past movement or direction of the price of a stock or overall market cannot be used to predict its future movement..

Random Walk Theory and the Weak-Form Efficiency of the US ..

They are different concepts, and the relation between them can be described as a conditional: "if EMH holds (all available information about future price movements is already priced into the market), then future price movements will follow a purely random walk as new and unpredictable information emerges"

random walk" theory, a popular view of market ..

(3) To demand that professional investors beat a bull market is to create a negative-sum game and then insist that the majority win at it. Every manager has to have some cash, and every manager pays commissions. By definition, it is impossible for the majority to beat a bull market. Even random walkers must reject this cute ruse. It is quite certain that if we were to isolate a bear market period in which many money managers beat the market simply because many of them held some cash, random walk proponents would not then declare such performance as evidence against their model.

He makes it clear that the transition between the intuitive idea of market efficiency and the martingale is far from direct.

Efficient Markets Hypothesis and Random Walk

A champion of random walk, still plying his axioms in the very latest issue of Bloomberg's Personal Finance magazine, uses this common argument in favor of market randomness:

The Efficient Market Hypothesis and Insider Trading on the Stock Market, ..

Testing the Random Walk Hypothesis with R, Part One

The origins of the Efficient Market Hypothesis (EMH) can be traced to Louis Bachelier in terms of theory and to Alfred Cowles' discovery, in practice, that apparently no one can predict the changes in stock prices.

random because even if the market is efficient you should - in theory at ..

Efficient Market Hypothesis And Random Walk Theory: …

The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information...