If random walk hypothesis is true wouldn't that imply that bear and bull markets, the internet boom and dot-com bubble, the Great Recession, the Great Depression, etc were the results of random variables and not directly influenced by human action?

closed as off-topic by ChrisInEdmonton, Chris W. Rea, JTP - Apologise to Monica Sep 10 '16 at 0:07

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "Questions on economics are off-topic unless they relate directly to personal finance." – ChrisInEdmonton, JTP - Apologise to Monica
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  • Random walk hypothesis is not an economics topic. For the common man, it is talked about in the fundamentals of corporate finance (brealey, myers, marcus) textbook, Investopedia, and wikipedia under Financial markets. You also fundamentally have to have some opinion on it if you claim to trade stocks with any intentions. – user1086516 Sep 10 '16 at 0:17
  • (FWIW, I didn't vote as "economics are off-topic", but as "too broad".) – Chris W. Rea Sep 10 '16 at 0:36
  • "Absolute statements are always inherently false." Having a random component which dominates the typical short term does not mean there aren't other components in atypical or longer term results. – keshlam Sep 10 '16 at 4:52

According to the wikipedia entry :

The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus cannot be predicted.

Equivalently, according to the investopedia entry:

The random walk theory suggests 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. In short, this is the idea that stocks take a random and unpredictable path.

Neither of these descriptions preclude the influence of human actions. What they do assume is that the aggregate of human actions is random and unpredictable. Indeed, markets are precisely the aggregate of human actions. I think it is fair to say that all social structures are notoriously unpredictable and prone to unexpected behaviour as well as sudden and dramatic changes from time to time.

Consider how this view of markets reflects on certain aspects of technical analysis (if that's not too snarky).

  • Influence was not the right word I should have used. Should have used changed or control. – user1086516 Sep 10 '16 at 0:19
  • @user1086516 There are extended periods of time when markets are controlled by human actions, but then something unexpected happens and the "powers that be" lose control. For example, a large investment bank can control the price of certain shares by reducing liquidity or by using options to leverage demand and create a "squeeze", or (heaven forbid) by doing something against the rules like spreading false rumours. – Nick Sep 10 '16 at 0:30

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