The Statement That Stock Prices Follow a Random Walk Implies

question 22

Multiple Choice

The statement that stock prices follow a random walk implies that:
I. The correlation coefficient between successive price changes (auto correlation) is not significantly different from zero.
II. Successive price changes are positively related.
III. Successive price changes are negatively related.
IV. The autocorrelation coefficient is positive.

• A) I only
• B) II only
• C) II and III only
• D) IV only

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Definitions:

Public Good

Nonexclusive and nonrival good; the marginal cost of provision to an additional consumer is zero and people cannot be excluded from consuming it.

Common Property Resource

A type of good consisting of natural or human-made resources where users have shared rights, often leading to problems of overuse or depletion.

Quota

A government-imposed trade restriction that limits the number, or monetary value, of goods that can be imported or exported during a specific time period.

Public Good

A product or service that is non-excludable and non-rivalrous, meaning its use by one individual does not reduce availability to others, and people cannot be effectively excluded from using the good.