In Finance, What is a Random Walk?
A random walk is a financial theory regarding the impact of past or present movements of stock prices or even entire markets on future movements. Essentially, this theory holds that regardless of what may have taken place before, or is currently taking place, those movements cannot be utilized as a means of determining what will happen in the future. Instead, the marketplace is viewed as unpredictable or random, and it is impossible to attempt to stay ahead of current circumstances without taking on a higher amount of risk. Proponents of this theory tend to promote a reactive approach to market trends, where investors follow what is happening currently, changing course only as the market changes course. The random walk theory gained considerable notice in 1973, when the concept was featured in a work entitled “A Random Walk Down Wall Street, by Buron Malkiel. Many in the financial world trace the origin of the term to 1964, when “The Random Character of Stock Market Prices” by Professo
