A None Random Walk Down the Inefficient Wall Street..!
Updated
What Is the Random Walk Theory?
The random walk theory raised many eyebrows in 1973 when author Burton Malkiel coined the term in his book "A Random Walk Down Wall Street.
Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, the random walk theory proclaims that stocks take a random and unpredictable path that makes all methods of predicting stock prices futile in the long run.
Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other.
Random walk theory infers that the past movement or trend of a stock price or market cannot be used to predict its future movement.
Random walk theory believes it's impossible to outperform the market without assuming additional risk.
Random walk theory considers technical analysis undependable because it results in chartists only buying or selling security after a move has occurred.
Random walk theory considers fundamental analysis undependable due to the often-poor quality of information collected and its ability to be misinterpreted.
Random walk theory claims that investment advisors add little or no value to an investor’s portfolio.
Efficient Markets are Random
The efficient market hypothesis states that stock prices fully reflect all available information and expectations, so current prices are the best approximation of a company’s intrinsic value. This would preclude anyone from exploiting mispriced stocks consistently because price movements are mostly random and driven by unforeseen events.
The problem is in 1973, there were no Computer, Internet, Algorithmic trading, Quant Funds, AI, and Machine learning..!
Moreover, there were no Social Media like Reddit or Twitter that make the systematic repetitive market manipulations new normalcy..!
This chart presents the price movement of
AAPL
MSFT
AMZN
FB
GOOG
and Major indexes:
SPX
NDX
Question 1:
Can you distinguish which line presents which stock or index?
Question 2:
Does it really matter to distinguish which one is which???
These 7 tickers have a significant positive correlation which means they will go Up/Down together, so if you are a trader don't waste your time, pick one and you can take a similar position in others with more than a 95% confidence interval. (either buy/sell)
*A perfectly positive correlation means that 100% of the time, the variables in question move together by the exact same percentage and direction.
**In exploratory studies, p-values enable the recognition of any statistically noteworthy findings. Confidence intervals provide information about a range in which the true value lies with a certain degree of probability, as well as about the direction and strength of the demonstrated effect.
Related Articles:
https://www.investopedia.com/terms/r/randomwalktheory.asp
The random walk theory raised many eyebrows in 1973 when author Burton Malkiel coined the term in his book "A Random Walk Down Wall Street.
Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, the random walk theory proclaims that stocks take a random and unpredictable path that makes all methods of predicting stock prices futile in the long run.
Random walk theory suggests that changes in stock prices have the same distribution and are independent of each other.
Random walk theory infers that the past movement or trend of a stock price or market cannot be used to predict its future movement.
Random walk theory believes it's impossible to outperform the market without assuming additional risk.
Random walk theory considers technical analysis undependable because it results in chartists only buying or selling security after a move has occurred.
Random walk theory considers fundamental analysis undependable due to the often-poor quality of information collected and its ability to be misinterpreted.
Random walk theory claims that investment advisors add little or no value to an investor’s portfolio.
Efficient Markets are Random
The efficient market hypothesis states that stock prices fully reflect all available information and expectations, so current prices are the best approximation of a company’s intrinsic value. This would preclude anyone from exploiting mispriced stocks consistently because price movements are mostly random and driven by unforeseen events.
The problem is in 1973, there were no Computer, Internet, Algorithmic trading, Quant Funds, AI, and Machine learning..!
Moreover, there were no Social Media like Reddit or Twitter that make the systematic repetitive market manipulations new normalcy..!
This chart presents the price movement of
AAPLMSFTAMZNFBGOOGand Major indexes:
SPXNDXQuestion 1:
Can you distinguish which line presents which stock or index?
Question 2:
Does it really matter to distinguish which one is which???
These 7 tickers have a significant positive correlation which means they will go Up/Down together, so if you are a trader don't waste your time, pick one and you can take a similar position in others with more than a 95% confidence interval. (either buy/sell)
*A perfectly positive correlation means that 100% of the time, the variables in question move together by the exact same percentage and direction.
**In exploratory studies, p-values enable the recognition of any statistically noteworthy findings. Confidence intervals provide information about a range in which the true value lies with a certain degree of probability, as well as about the direction and strength of the demonstrated effect.
Related Articles:
https://www.investopedia.com/terms/r/randomwalktheory.asp
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