- [[Malkiel 1973 random walk down street]], [[Malkiel 2003]], [[Thaler 1987 anomalies - the January effect]], [[January effect]] # Idea Market prices capture all information that is already available. That is, all information has already been "priced into" market prices. Thus, fluctuations of prices are just [[random walks]], though the overall "drift" of the price will depend on the economy (e.g., overall, the market price could be going up), so when we detrend (i.e., remove a downward/upward trend), all we are left we is a random walk. Because prices already reflect all information, it's therefore impossible to beat the market. But see also [[problems with the efficient market hypothesis]]. Note that even though in [[random walks]], the value at each increment is sampled from a [[normal distribution]], fluctuations in stock prices are better described by the [[Cauchy distribution]]. [[Malkiel 2003 efficient market hypothesis and its critics]] > The efficient market hypothesis is associated with the idea of a 'random walk,' which is a term loosely used in the finance literature to characterize a price series where all subsequent price changes represent random departures from previous prices. The logic of the random walk idea is that if the flow of information is unimpeded and information is immediately reflected in stock prices, then tomorrow's price change will reflect only tomorrow's news and will be independent of the price changes today. But news is by definition unpredictable and, thus, resulting price changes must be unpredictable and random. # References - https://www.coursera.org/learn/model-thinking/lecture/WOMBq/random-walks-and-wall-street