The Statement That Stock Prices Follow a Random Walk Implies

question 45

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:

Positive Economic Profits

Earnings that exceed the total opportunity costs of all inputs, indicating a return above the normal profit level.

Expand

To increase in size, number, or importance, often relating to businesses aiming to grow through increased operations, product lines, or market reach.

Equilibrium

The condition that exists when quantity supplied and quantity demanded are equal. At equilibrium, there is no tendency for price to change.

Incentive

A factor, often financial, that motivates individuals or organizations to perform certain actions or behave in a desired way.