Though it is generally accepted that a random walk describes the pattern of successive price changes in the market, a review of research evidence suggests that this is by no means a universal fact. Rather than being a general description of market movement, a random walk appears adequate as a description of some markets and not of others, and during some periods of time but not others. In an attempt to understand some of the determinants of the degree of randomness, serial correlations and the runs test were calculated for daily price changes in the stock of the South Sea Company during 1715, a period of financial uneventfulness and during 1720, the period of speculative mania known as the South Sea Bubble. Market movement was distinctly non-random during 1720.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Organizational Behavior and Human Resource Management