Tuesday, February 19, 2008

Asset Price: Random Walk?

Hi All,

Stock prices are generally held to be a random walk. But I have being thinking how is this possible since for a very old company, any information that was factored in about 50 years ago would hold the same weight. My thought is that this information will have a lesser weight as time progresses. This would imply that asset prices would have some serial correlation. To add more to this, daily data may appear as following a random walk since there is a lot of information which are factored in. If the sampling frequency is increased to say tick by tick data then returns may have some correlation.

What are your comments?

Suminda Sirinath Salpitikorala Dharmasena


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