Efficient market hypothesis and the random walk hypothesis
have been major issues for research in the financial literature for over more than four decades.
The auto-correlation of randomness for the chosen period rejected the Random Walk Hypothesis
(RWH) for daily and weekly index returns but documented the existence of RWH for monthly index returns.
Perdomo & Botelho (2007) tested the random walk hypothesis
for the Brazilian case by comparing the error of exchange rate projections performed by banks, consulting firms, and financial institutions.
For instance, Chun (2000) based on variance ratio tests found that the Hungarian capital market was weakly efficient; Gilmore and McManus (2003) investigated informational efficiency in its weak form from the Czech Republic, Poland and Hungary (within 1995-2000) and rejected the random walk hypothesis
based on the results of a model comparison approach.
Fama portrayed the concept of random walk hypothesis
in his thesis.
Interestingly, when they used this test for weekly returns in the US stock market from 1962 to 1985, they strongly rejected the random walk hypothesis
Also offered near the end of this chapter are reflections on the random walk hypothesis
first formally established and popularised by Morgenstern and Granger in the 1960s, and more recent research in financial economics by Eugene Fama, Burton Malkiel and Robert Shiller appreciated in the light of Morgenstern's early work.
Building on the Samuelson's microeconomic approach together with a taxonomy suggested by the Harry Roberts (1967), Fama (1970) tried to formalise the theory and organise the growing empirical evidence to support the random walk hypothesis
The main purpose of the present study is to test the random walk hypothesis
that past prices cannot be used to predict the future price movements.
The random walk hypothesis
is used to explain the successive price changes which are independent of each other.
Ko and Lee (1991) argued that "if the random walk hypothesis
holds, the weak-form of the efficient market hypothesis must hold, but not vice versa.
An increase in data availability during the 1990's permitted greater statistical confidence, and new works based on the long term path rejected the random walk hypothesis