ABSTRACT
A market in which futures prices cannot be predicted using past historical price data is weak-form market efficient (Fama, 1970). A market that is weak-form efficient is said to be characterized by a random walk. A random walk ‘is a term loosely used in the finance literature to characterize a price series where all subsequent price changes represent random departures from previous prices’ (Malkiel, 2003: 60). The implication is that if a market is characterized by a random walk, an uninformed investor purchasing a diversified portfolio will obtain, on average, a rate of return as good as that realized by an expert (assuming a comparable level of risk).
