The document discusses tests performed to analyze random walk theory (RWT). RWT states that future stock prices cannot be predicted from past prices. Simulation tests, conducted by Harry Roberts, generated random stock price graphs to examine RWT. Serial correlation tests, performed by Moore in 1964, analyzed correlations between weekly stock price changes. Filter tests established buy and sell points at certain percentage thresholds above or below original prices. Run tests counted consecutive price increases or decreases to assess randomness.

3. Know about RWT
Also called asWeak Form of Efficiency.
Pricesare based on theinflow of news
which randomly occur in themarket.
Futurepricescannot bepredicted.
Buying and selling information lead the
trader align with theintrinsic value.

4. Simulation
Test
Serial
Correlation
Test
Run
Test
Filter
Test

5. Simulation Test
Performed by Harry Roberts.
Examinetheappearanceof Dow Jones
index expressed in levelsand weekly
changes
Changesaregenerated from random
numbers& then converted to graphs
depicting levelsof theDow Jonesindex.

6. Simulation Test

7. Serial Correlation
• Examine by Moore in 1964.
• Correlate the price change in one week
to price change in another week.
• Price changes are correlated, points
plotted in graph tend to lie in the straight
line.
• He considered avg correlation to be
0.06%, if low low tendency.

11. Filter Test
Stock movesup with percent  Buy it and
it for along period.
When thesamepercent falls Sell it.
It Rangesfrom 0.5% to 50%.
For eg:- Assumefilter to be10%. Priceis
Rs20, Buy at Rs22 & reached till Rs30 &
fall, Sell at Rs. 27.

12. Run Test
It is a set of consecutive prices of the
same sign.
If increase “+” & decrease “-”.
Shares Number of Runs
A
B
C
+ + + + + +………2
+-+-+-+-+ -…..10
- -+- + + +- - -….6