Dept.

of Management Studies
JNNCE – Shimoga
III SEMESTER MBA

SUBJECT: INVESTMENT MANAGEMENT

(18MBAFM302) Date: 30/11/2019

SEMINAR
On
“RANDOM WALK THEORY AND EFFICIENT MARKET”

Presented by

VIKAS S K

(4JZ18MBA59)

Dr. Lakshmeesha Kanti K S

Associate Professor
Random walk theory suggests that changes in stock prices have the same distribution and are
independent of each other. Therefore, it assumes the past movement or trend of a stock price
or market cannot be used to predict its future movement. In short, random walk theory
proclaims that stocks take a random and unpredictable path that makes all methods of
predicting stock prices futile in the long run.

KEY TAKEAWAYS

 Random walk theory suggests that changes in stock prices have the same distribution
and are independent of each other.
 Random walk theory infers that the past movement or trend of a stock price or market
cannot be used to predict its future movement.
 Random walk theory believes it's impossible to outperform the market without
assuming additional risk.
 Random walk theory considers technical analysis undependable because it results in
chartists only buying or selling a security after a move has occurred.

Efficient Market Hypothesis

The Efficient Market Hypothesis (EMH) essentially says that all known information about
investment securities, such as stocks, is already factored into the prices of those securities.
Therefore, assuming this is true, no amount of analysis can give an investor an edge over
other investors, collectively known as "the market."

There are three forms of Efficient Market Hypothesis:

 Weak Form EMH: Suggests that all past information is priced into securities.
Fundamental analysis of securities can provide an investor with information to produce
returns above market averages in the short term, but there are no "patterns" that exist.
 Semi-Strong Form EMH: Implies that neither fundamental analysis nor technical
analysis can provide an advantage for an investor and that new information is instantly
priced in to securities.
 Strong Form EMH: Says that all information, both public and private, is priced into
stocks and that no investor can gain advantage over the market as a whole. Strong Form
EMH does not say some investors or money managers are incapable of capturing
abnormally high returns because that there are always outliers included in the averages.