An Empirical Investigation of the Random Walk Hypothesis in the US and UK Stock Markets Do Well Developed Economies with High Market Capitalization Yield the Same Conclusions?

Abstract

This paper assesses the validity of random walk in the US and UK stock markets, in order to assess whether controlling for the size of market capital and the extent of economic development impacts results. We find that results are not robust to the empirical techniques employed, nor are they robust to the choice of horizon length. Therefore, the lack of consensus in professional opinion regarding the validity of the random walk hypothesis cannot be wholly attributed to differences in market capital and economic development. Future research should attempt to control for other factors such as trading frequency and volume, with the aim of identifying key economic dynamics which influence the results.