FRM Financial Risk Manager Practice Test

Category - The Random Walk Model

True or false: Behind the random walk model, current price is the best prediction of future prices.
  1. True
  2. False
Explanation
With the random walk model, current price is the best prediction of future prices. The random walk model states that asset prices are unpredictable and that the current price is the best prediction of future price.

Key Takeaway: For further reading, we recommend Burton Malkiel’s 1973 book, A Random Walk Down Wall Street. It’s a must read for anyone interested in the markets.
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