"Randomness is a difficult notion for people to accept. When events come in clusters and streaks, people look for explanations and patterns. They refuse to believe that such patterns - which frequently occur in random data - could equally well be derived from tossing a coin. So it is in the stock market as well." (Burton G Malkiel, "A Random Walk Down Wall Street", 1989)
"A random walk is one in which future steps or directions cannot be predicted on the basis of past history. When the term is applied to the stock market, it means that short-run changes in stock prices are unpredictable. Investment advisory services, earnings forecasts, and chart patterns are useless. [...] What are often called 'persistent patterns' in the stock market occur no more frequently than the runs of luck in the fortunes of any gambler playing a game of chance. This is what economists mean when they say that stock prices behave very much like a random walk." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"[...] an accurate statement of the 'weak' form of the random-walk hypothesis goes as follows: The history of stock price movements contains no useful information that will enable an investor consistently to outperform a buy-and-hold strategy in managing a portfolio. [...] Moreover, new fundamental information about a company [...] is also unpredictable. It will occur randomly over time. Indeed, successive appearances of news items must be random. If an item of news were not random, that is, if it were dependent on an earlier item of news, then it wouldn't be news at all. The weak form of the random-walk theory says only that stock prices cannot be predicted on the basis of past stock prices. [...] the weak form of the efficient-market hypothesis (the random-walk notion) says simply that the technical analysis of past price patterns to forecast the future is useless because any information from such an analysis will already have been incorporated in current market prices." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"Informational cascades occur when individuals choose to ignore or downplay their private information and instead jump on the bandwagon by mimicking the actions of individuals who acted previously. Informational cascades occur when the existing aggregate information becomes so overwhelming that an individual’s single piece of private information is not strong enough to reverse the decision of the crowd. Therefore, the individual chooses to mimic the action of the crowd, rather than act on his private information. If this scenario holds for one individual, then it likely also holds for anyone acting after this person. This domino-like effect is often referred to as a cascade. The two crucial ingredients for an informational cascade to develop are: (i) sequential decisions with subsequent actors observing decisions (not information) of previous actors; and (ii) a limited action space." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"Knowledge is encoded in models. Models are synthetic sets of rules, pictures, and algorithms providing us with useful representations of the world of our perceptions and of their patterns. As argued by philosophers and shown by scientists, we do not have access to 'reality', only to some of its manifestations, whose regularities are used to determine rules, which when widely applicable become 'laws of nature'. These laws are constantly tested in the scientific march, and they evolve, develop and transmute as the frontier of knowledge recedes further away." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"Perhaps the most common complaint about the weakness of the random-walk theory is based on a distrust of mathematics and a misconception of what the theory means. 'The market isn't random', the complaint goes, 'and no mathematician is going to convince me it is'. [...] But, even if markets were dominated during certain periods by irrational crowd behavior, the stock market might still well be approximated by a random walk. The original illustrative analogy of a random walk concerned a drunken man staggering around an empty field. He is not rational, but he's not predictable either." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"Reputational herding, like cascades, takes place when an agent chooses to ignore his or her private information and mimic the action of another agent who has acted previously. However, reputational herding models have an additional layer of mimicking, resulting from positive reputational properties that can be obtained by acting as part of a group or choosing a certain project." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
"The random-walk theory does not, as some critics have proclaimed, state that stock prices move aimlessly and erratically and are insensitive to changes in fundamental information. On the contrary, the point of the random-walk theory is just the opposite: The market is so efficient - prices move so quickly when new information does arise, that no one can consistently buy or sell quickly enough to benefit." (Burton G Malkiel, "A Random Walk Down Wall Street", 1999)
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