Question

The term random walk is used in investments to refer to?

1) A strategy of making investment decisions based on random choices
2) A mathematical model used to predict stock market movements
3) A method of analyzing financial data to identify trends
4) A theory that states stock prices are unpredictable and follow a random pattern

Answer 1

The term random walk in investments refers to a theory that states stock prices are unpredictable and follow a random pattern. This means that on any given day, stock prices are just as likely to rise as to fall. Over time, however, the upward steps tend to be larger than the downward steps, resulting in stocks gradually climbing.

Step-by-step explanation:

The term random walk in investments refers to a theory that states stock prices are unpredictable and follow a random pattern. This means that on any given day, stock prices are just as likely to rise as to fall. Over time, however, the upward steps tend to be larger than the downward steps, resulting in stocks gradually climbing.