Random Walk Theory
Since I work in a company which deals with finance, a very interesting subject, I thought I should provide you some interesting information in finance.
One of the most basic theories is the Random Walk Theory:
The theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.
In short, this is the idea that stocks take a random and unpredictable path. A follower of the random walk believes it's impossible to outperform the market without assuming additional risk. Tenets of the theory, however, recognize that stocks maintain an upward trend over time.
This theory raised a lot of eyebrows in 1973 when author Burton Malkiel wrote A Random Walk Down Wall Street, which remains on the top-seller list for finance books.
One of the most basic theories is the Random Walk Theory:
The theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement.
In short, this is the idea that stocks take a random and unpredictable path. A follower of the random walk believes it's impossible to outperform the market without assuming additional risk. Tenets of the theory, however, recognize that stocks maintain an upward trend over time.
This theory raised a lot of eyebrows in 1973 when author Burton Malkiel wrote A Random Walk Down Wall Street, which remains on the top-seller list for finance books.
courtesy: http://www.investopedia.com/terms/r/randomwalktheory.asp
This is one of the main theories which is used to explain that investing in stocks is not equivalent to gambling, which is a zero-sum game.
Investopedia is a wonderful site for beginners to learn all about finance, stock markets and investment. If you are a novice, but want to learn about all this, I strongly recommend this website.
0 Comments:
Post a Comment
<< Home