Under the Concept of an Efficient Market, a Random Walk

question 21

Multiple Choice

Under the concept of an efficient market, a random walk in stock prices means that:

• A)there is no driving force behind price changes.
• B)technical analysts can predict future price movements to earn excess returns.
• C)the unexplained portion of price change in one period is unrelated to the unexplained
• Portion of price change in any other period.
• D)the unexplained portion of price change in one period that can not be explained by
• Expected return can only be explained by the unexplained portion of price change in a
• Prior period.
• E)None of the above.

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Definitions:

Standard Normal

An ordinary distribution with a 0 mean and a 1 standard deviation.

Random Variable

A variable with numerical outcomes derived from random occurrences.

Standard Normal

Refers to a normal distribution with a mean of 0 and a standard deviation of 1, used as a basis for comparing and standardizing normal distributions.

Random Variable

A variable whose outcomes depend on the results of a random phenomenon.