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random-walk hypothesis

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Financial Dictionary

random-walk hypothesis

The hypothesis that states that past stock prices are of no value in forecasting future prices because past, current, and future prices merely reflect market responses to information that comes into the market at random. In short, price movements are no more predictable than the pattern of the walk of a drunk. This controversial hypothesis implies that technical analysis is useless in its attempts to predict future price movements in the market.

Wall Street Words: An A to Z Guide to Investment Terms by David L. Scott.
Copyright © 2003. Published by Houghton Mifflin.
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