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Chapter 21: Q. dFCT (page 479)

How do you suppose that proponents of the random walk theory for prices of individual shares of stock would respond to the view that the average of stock prices might be predictable? Explain your reasoning.

Short Answer

Expert verified

That creates all methods of predicting stock prices futile within the future.

Step by step solution

01

Given Information

Random walk theory suggests that changesavailable prices havethe identical distribution and are independentof every other.

02

Explanation

That maintains that such a cost of equity or market's recent behavior or trend should be used to estimate the future development. In short, stochastic process theory proclaims that stocks take a random and unpredictable path that creates all methods of predicting stock prices futile within the prospect.

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