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-Ranpreet kaur

Random walk is a stock market theory that states that the past

movement or direction of the price of a stock or overall market cannot be used to predict its future movement.
Originally examined by Maurice Kendall in 1953, the theory

states that stock price fluctuations are independent of each other and have the same probability distribution, but that over a period of time.

The theory that stock price changes have the same distribution and are independent of each other, so the past movement or trend of a stock price or market cannot be used to predict its future movement. Or An investment theory which claims that market prices follow a random path up and down, without any influence by past price movements, making it impossible to predict with any accuracy which direction the market will move at any point.

Random walk says that stocks take a random and unpredictable path.

The chance of a stock's future price going up is the same as it going


A follower of random walk believes it is impossible to outperform the

market without assuming additional risk.

Theory states that both technical analysis and fundamental analysis are

largely a waste of time and are still unproven in outperforming the markets.

The Random Walk Model is generally used to testify the weak-form

Efficient Market Hypothesis.

The random walk theory asserts that price movements will not

follow any patterns or trends and that past price movements cannot be used to predict future price movements.(risk)
The random walk theory proclaims that it is impossible to

consistently outperform the market, particularly in the short-term, because it is impossible to predict stock prices.(market performance)

Random walk theory

Serial correlations.(period/independent)
Runs tests(Series of stock price Changes/No difference

between the sign of two changes) Filter rules(Price I buy and hold until price ) Returns over long Horizons.(short horizons-minor positive serial correlation, long horizons-Negative serial correlation


trading (HFT) is the use of sophisticated technological tools to trade securities like stocks or options,

High-frequency traders compete on a basis of speed with other high-

frequency traders, not long-term investors (who typically look for opportunities over a period of weeks, months, or years), and compete for very small, consistent profits.

A program trading platform that uses powerful computers to transact a large number of orders at very fast speeds. High-frequency trading uses complex algorithms to analyze multiple markets and execute orders based on market conditions. Typically, the traders with the fastest execution speeds will be more profitable than traders with slower execution speeds.

Note- As of 2009, it is estimated more than 50% of exchange volume comes from high-frequency trading orders.

It is highly quantitative, employing computerized algorithms to

analyze incoming market data and implement proprietary trading strategies; An investment position is held only for very brief periods of time from seconds to hours - and rapidly trades into and out of those positions, sometimes thousands or tens of thousands of times a day; It is very sensitive to the processing speed of markets and of their own access to the market; Many high-frequency traders provide liquidity and price discovery to the markets through market-making and arbitrage trading; highfrequency traders also take liquidity to manage risk or lock in profits.


Market Efficiency
Reduced Costs Profitability

Advantage of minute discrepancies in prices and trade

To take advantage of various market scenarios.

Market Manipulation

Unfair to Small Investors