Random walk

Definition:

Theory that stock price changes from day to day are accidental or haphazard; changes are independent of each other and have the same probability distribution. For a simple random walk, the best forecast of tomorrow's price is today's price. Related: Mean reversion.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Contingency order

In the context of general equities, order to buy one security, if the trader can sell another, usually given that certain price limits or conditions reach a certain level. Swap, switch order.

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