Random walk theory gained popularity in 1973 when Burton Malkiel wrote A Random Walk Down Wall Street, a book that is now regarded as an investment classic. 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. Originally examined by Maurice Kendall in 1953, the theory states that stock price fluctuations are independent of each other and have the same probability distribution, but, over a period of time, prices maintain an upward trend.
In short, random walk says that stocks take a random and unpredictable path. Continue reading “Random Walk Theory”