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Stock prices follow a random walk with a trend because:__________

a. stock prices gradually rise over time.
b. stock prices are based on expectations about future profits only and gradually rise over time.
c. stock prices are based on future profits only and gradually rise over time.
d. stock prices are based on both future profits and expectations about future profits and gradually rise over time.

Sagot :

anthougo

Answer:

Stock prices follow a random walk with a trend because:__________

d. stock prices are based on both future profits and expectations about future profits and gradually rise over time.

Explanation:

The random walk theory of the stock price movement states that there is no observable pattern or trend to the movement of a stock price.  It is, therefore, impossible to use the past movement or trend of a stock price to predict its future movement.  This means that the wise investor should invest in the market portfolio to reflect more closely the movement of stock prices in the market instead of investing in a single stock or market security.

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