A Random Walk Down Wall Street

A Random Walk Down Wall Street

This is the name of a famous book written by Malkiel, who raised the statement that the stock price follows a kind of random walk. Under the theory in his book, he claims it is absolutely useless to predict the future behavior of the stock market. If his theory is right, there will be no meaning to open business school and have so many people doing research on asset pricing and portfolio management. At the same time the research department in investment banks shall be dismissed immediately since the market they predict follows random walk and consequently have no meaning to predict whether it will go up. His point has no support in the real market under whatever criteria. From the statistics point if the market follows random walk, then the chance of get out of 10 sigma range shall never happen for one time in 100 years while the truth is it happened twice in recent 30 years. The first time is 1987 stock market disaster and the second time is 2008 financial crisis. And we can also disprove the random walk hypothesis in his book by the good performance of some famous investors in the near thirty years. Just take James Simons as an example, who is a famous mathematician in differential geometry and the founder of Renaissance Technology, his hedge fund outperforms the market standard in 20 per cent every year in the recent 25 years, which indicates the theory of random walk is truly ridiculous. Just as What George Soros claimed that his existence is the counter example of Malkiel’s book.

This time I am alone and take a random walk along the Wall Street, carrying a 20 pounds baggage back and with no fellow travellers. In this narrow street hardly could I smell the intense of trade in the stock market but actually this is the battlefield of the most talented people around the world. I have heard that several female investment bankers even never stopped trading when giving birth to their children. Different from last time’s visit to Wall Street, I find this time Wall Street has fewer visitors and little crowdedness. Shall my appearance to the Wall Street disturb the market equilibrium? Maybe no. To my surprise the huge National flag of the United States also disappears in the front door of New York Stock Exchange. Do the Americans stop hanging their national flag and showing their arrogance just because the closure of the government? Maybe no. Maybe Wall Street remains constant day after day and year after year but it is me who is changing. Looking at the hurrying investment bankers on the street and visitors taking photos before the New York Stock Exchange and Wall Street Bull, I find they have no difference with cops maintaining order on the street. Everyone on the street is making a living. Someone win and some others lose. This is the life on the Wall Street and all people want to earn profits from others. But who will win finally? Investment bankers? Listed companies? Or hedge fund partners? Maybe they will all lose finally. What remains forever is the eternal of Wall Street Spirit and the constant New York Stock Exchange buildings.

I will be back. I may win your money even when you are not noticed. Never neglect any people taking random walk on the street. He might be your next competitor. This is the story everyone has heard on the street.

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