Can You Explain The Concept Of The Random Walk In Efficient Markets Given By Modern Economists?
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Economists and finance professors have along studied prices in speculative prices in speculative markets, like the stock market, and markets for commodities such as corn. Their findings have stirred great controversy and have been angered many financial analysts. Yet this is an area in which the facts have largely corroborated the theories.
According to modern economists. We shall see in a minute why this proposition is plausible. First, let's consider its factual basis. There have been numerous studies over the years about rules or formulas for making money. Typically rules are "Buy after 2 days of increases" or "Buy on the bad news and sell on the good news."
This observation led to the dartboard theory of stock selection: you can throw a dart at the Wall Street Journal as a way of selecting stocks. Better still buy a little of everything in the market so that you hold a diversified index portfolio of the stock market. This would probably leave you better off than your cousins who follow a broker advice. Why? Because they would have to pay broker's commission while their stocks on average would not out perform yours.
According to modern economists. We shall see in a minute why this proposition is plausible. First, let's consider its factual basis. There have been numerous studies over the years about rules or formulas for making money. Typically rules are "Buy after 2 days of increases" or "Buy on the bad news and sell on the good news."
This observation led to the dartboard theory of stock selection: you can throw a dart at the Wall Street Journal as a way of selecting stocks. Better still buy a little of everything in the market so that you hold a diversified index portfolio of the stock market. This would probably leave you better off than your cousins who follow a broker advice. Why? Because they would have to pay broker's commission while their stocks on average would not out perform yours.
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