The AI (ChatGPT) Stock Investing Handbook: Do Stock Prices Change Randomly?

Here is the response from ChatGPT for the prompt stock prices random walk entered on January 17, 2023.

The random walk theory is a financial theory that states that stock prices change randomly and that it is impossible to predict future price movements by analyzing past prices. This theory suggests that stock prices follow a random pattern and that any attempt to predict future prices is futile.

The random walk theory is based on the idea that the stock market is efficient, meaning that all available information is quickly and accurately reflected in stock prices. Therefore, any new information that becomes available, such as company earnings or economic data, is immediately incorporated into the price of a stock.

The theory suggests that past price movements or patterns cannot be used to predict future price movements, and that any attempts to do so are futile. It also suggests that it is impossible to consistently achieve above-average returns through market timing or stock picking.

It's important to keep in mind that while the random walk theory suggests that stock prices may change randomly, there are still many factors that can influence stock prices, such as company performance, economic conditions, and investor sentiment.

In summary, the random walk theory states that stock prices change randomly and it is impossible to predict future price movements by analyzing past prices. It suggests that stock market is efficient, meaning that all available information is quickly and accurately reflected in stock prices, and that any attempts to predict future prices is futile. The theory advises investors to focus on a long-term investment strategy, to diversify their portfolio and to minimize costs.