Random Walk Hypothesis

Discipline: Economics

First identified by French economist Louis Bachelier (1870-1946) from the study of the French commodity markets, random walk hypothesis asserts that the random nature of commodity or stock prices cannot reveal trends and therefore current prices are no guide to future prices.

The short-term unpredictability of factors means that they appear to walk randomly on a chart, and the best guide to tomorrow's weather (or stock prices) is today's weather.

Also see: adaptive expectations, efficient market hypothesis, rational expectations theory

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