IFA.com – http – The random walk of stock market prices and the efficient market hypothesis is simulated by physical action of beads hitting a pattern of pins. The Efficient Market Hypothesis says prices are fair. If the expected return of an investment is 1% per month, about half the monthly returns will below and above that average return. So the fair price set at the beginning of each month sets the chance that future returns will be 50% higher and 50% lower than the expected return. The further the returns deviate from the average, the less likely they are to occur. The red bar overlay represents 600 simulated monthly returns of ifa’s Index Portfolio 100. As you can see the distribution of the beads is similar to the index portfolio.

Sir Francis: the Probabilty Machine – From Chaos to Order – Randomness in Stock Prices is a post from: FYInance

Related posts

• Jim Cramer on Positive Academic Study of His Portfolio/Stock Picking Performance
• Stock Investing – Tips to Get the Small Investor Started in the Equity Market
• Investment Basics : Managing CD Investment Accounts
• Beginner Investing : What Is a Good Rate on a CD?
• Investment Advice : How Long to Invest in CDs
• Investing Tips : How to Create an Investment Portfolio in Your Early 20s
• Stock Market : About Different Types of Annuities