Random walk with drift

Definition:

For a random walk with drift, the best forecast of tomorrow's price is today's price plus a drift term. One could think of the drift as measuring a trend in the price (perhaps reflecting long-term inflation). Given the drift is usually assumed to be constant. Related: Mean reversion.

Investing Essentials


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

Term of the Day

Project

The asset constructed with or owned via a project financing, which is expected to produce cash flow at a debt-service coverage ratio sufficient to repay the project financing.

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