Question

Since stock prices will shift in response to unpredictable future news, these prices will tend to follow what mathematicians call _________________.

Answer 1

Answer:

a random walk with a trend

Explanation:

This model assumes that in each period the stock prices would take a random step away from what was its previous value.

Stock prices cannot be predicted therefore they are a random walk. Future prices cannot be predicted by what used to be the prices in the past. Stock prices change in response to unpredictable future news, hence they follow a random walk with a trend.