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2 August, 04:06

What is the efficient markets hypothesis, and how does it relate to random walks?

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  1. 2 August, 04:15
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    Answer: Answer is in Explanation below

    Explanation: The efficient market hypothesis expresses that assets such as share prices are set to reflect all the information available. This means that the prices found in the markets only respond to new information.

    A random walk states that share market prices change randomly. This means that the prices cannot be forecasted. This financial theory makes it consistent with the efficient market hypothesis, as these prices are set based on available information, and only change when new info is introduced into the market. Investors do not have a say in what the price should be, and cannot claim that the share price is over or undervalued.
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