Security Markets Have Been Described as Random Walks and Efficient

question 26

Essay

Security markets have been described as random walks and efficient markets. What does each of these terms mean and how do they relate to the stock market? What makes a market efficient and what are the consequences of efficiency for fundamental and technical analysis?

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Definitions:

Bond Discount

The difference when the market value of a bond falls below its original principal amount or face value.

Straight-line Method

A method of calculating depreciation by evenly spreading the cost of an asset over its expected useful life.

Serial Bond

A type of bond that matures in installments over a period of time rather than having a single maturity date.

Principal

The initial amount of money borrowed or invested, excluding any interest or dividends.