''A Random Walk Down Wall Street'', written by Burton Gordon Malkiel, a

Princeton University Princeton University is a private research university in Princeton, New Jersey. Founded in 1746 in Elizabeth as the College of New Jersey, Princeton is the fourth-oldest institution of higher education in the United States and one of the ...

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

, is a

book A book is a medium for recording information in the form of writing or images, typically composed of many pages (made of papyrus, parchment, vellum, or paper) bound together and protected by a cover. The technical term for this physical ...

on the subject of

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...

s which popularized the

random walk hypothesis The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk (so price changes are random) and thus cannot be predicted. History The concept can be traced to French broker Jules Regnault who ...

. Malkiel argues that asset prices typically exhibit signs of a

random walk In mathematics, a random walk is a random process that describes a path that consists of a succession of random steps on some mathematical space. An elementary example of a random walk is the random walk on the integer number line \mathbb Z ...

and that one cannot consistently outperform market averages. The book is frequently cited by those in favor of the

efficient-market hypothesis The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...

. As of 2020, there have been twelve editions and over 1.5 million copies sold. A practical popularization is ''The Random Walk Guide to Investing: Ten Rules for Financial Success''.Hardback: , Paperback:

Investing techniques

Malkiel examines some popular investing techniques, including

technical analysis In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sam ...

and

fundamental analysis Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and competitors and markets. It also considers the overall sta ...

, in light of academic research studies of these methods. Through detailed analysis, he notes significant flaws in both techniques, concluding that, for most investors, following these methods will produce inferior results compared to passive strategies. Malkiel has a similar critique for methods of selecting actively managed mutual funds based upon past performances. He cites studies indicating that actively managed mutual funds vary greatly in their success rates over the long term, often underperforming in years following their successes, thereby regressing toward the mean. Malkiel suggests that given the distribution of fund performances, it is statistically unlikely that an average investor would happen to select those few

mutual fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICA ...

s which will outperform their benchmark index over the long term.

References

{{DEFAULTSORT:Random Walk Down Wall Street 1973 non-fiction books Finance books W. W. Norton & Company books

Investing techniques

See also

References