Social and Behavioral Sciences Commons^™

Random Walks, Lemmings, And Behaviorism; The Search For A Market Lodestar, John Sondey

Economics Staff Paper Series

Random Walk: Burton Malkiel defines a random walk as "one in which future steps or directions cannot be predicted on the basis of past actions." Within the context of the stock market, a random walk for a stock's price means that it is as likely to fall as to rise, regardless of previous price performance (Malkiel, 1996). To hold the random walk hypothesis as truth is to foresake all punditry regarding fundamental and technical analysis and to abandon long-standing shibboleths such as evolving industries and sectoral rotation. Essentially, random walk implied that "winners" could not consistently be picked. The Wall …