If the Prices of Financial Assets Follow a Random Walk

question 76

Multiple Choice

If the prices of financial assets follow a random walk, then

• A)they should be easy to forecast, provided market participants have rational expectations.
• B)they should be easy to forecast, provided market participants have adaptive expectations.
• C)the change in price from one trading period to the next is not predictable.
• D)major traders in the market must not be making use of all available information about the assets.

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Definitions:

Cash Register

A machine or device at a point of sale used to calculate and register transactions and to store money.

Cash Over and Short

An account used to report the discrepancies between the actual amount of cash received and the expected amount in a cash transaction.

Count of Cash

The process of physically verifying the amount of cash on hand at a particular time.

Days' Sales Uncollected

A financial metric that estimates the average number of days a company takes to collect revenue after a sale has been made.