30. In the random walk hypothesis, the asset price follows a random walk, where

Question

30. In the random walk hypothesis, the asset price follows a random walk, where the price movement in each period is completely uncorrelated with movements in prior periods. For prices to follow a random walk, which of the following assumptions needs to hold? (a) All existing information about the asset should be impounded into the current price (b) Investors are unbiased in setting expectations (they dont consistently set them too high or too low). (c) Investors react instantaneously to new information (d) All of the above 31. How do you evaluate the following statement:

Explanation / Answer

The correct answer is (C) i.e investors react instantaneously to new information because only then would the asset price follow a random walk. The other two options are important for the efficient market hypothesis.

Related Questions

Navigate

• Browse (All)
• Browse 3
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.