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:

Avoid Them

Advice often given to steer clear of certain behaviors, individuals, or situations that may be harmful or counterproductive.

Circular Reasoning

A logical fallacy in which the conclusion is assumed in one of the premises, offering no real evidence for a claim.

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