Why it is often assumed that share prices follow a random walk with drift?
The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus the prices of the stock market cannot be predicted. It has been described as ‘jibing’ with the efficient-market hypothesis. In short, random walk says that stocks take a random and unpredictable path. The chance of a stock’s future price going up is the same as it going down. A follower of random walk believes it is impossible to outperform the market without assuming additional risk. Economists have historically accepted the random walk hypothesis. They have run several tests and continue to believe that stock prices are completely random because of the efficiency of the market. The term was popularized by the 1973 book, A Random Walk Down Wall Street, by Burton Malkiel, currently a Professor of Economics and Finance at Princeton University, and was used earlier in Eugene Fama’s 1965 article Random Walks In Stock Market Prices, which was a less technical version
