ABSTRACT
Economists have long been fascinated by the nature and sources of variations in the stock market. By the early 1970s a consensus had emerged among financial economists suggesting that stock prices could be well approximated by a random walk model and that changes in stock returns were basically unpredictable. Fama (1970) provides an early, definitive statement of this position. Historically, the “random walk” theory of stock prices was preceded by theories relating movements in the financial markets to the business cycle. A prominent example is the interest shown by Keynes in the variation in stock returns over the business cycle.
