First time conceptof random walk was introduced in France by Regnault (1863) and later on in 1900it was further admitted by Bachelier,L. who was the French Mathematician.Further the concept was strengthened by Cowles (1933), the random nature of themarket prices not allowed investors to make profits more than normal profit ofthe market. Further Kendal (1953) ,Cootner (1962) and Samuelson (1965) in theirrespective studies found evidences in support of Random Walk behaviors. ·Bottom of FormTill 1960s, EfficientMarket Hypothesis concept was widely researched and discussed, which laterbecame controversial on the basis that empirical studies shown against theseasonal anomalies and efficiency in the stock markets. Fama (1965),explained Efficient Market Hypothesis in his article that efficient markets arethe one where returns are not capitalized by specific pattern trading. Theefficient market hypothesis can be linked with Random walk notion, which statesthat random changes can happen in stock prices due to which future pricescannot be predicted from historical prices. The rationale behind random walkstates that successive prices are independent and are distributed identicallyas random variables which implied the changes in price series has no memory andhence prices cannot be predicted using trends (Fama,1965)Granger andMorgenstern and Godfrey (1963) gave the spectral analysis techniques fortesting random walk hypothesis, using the same technique Granger, andMorgenstern (1964) supported the independent assumptions of the random-walkmodel.
Fama & French (1988); Lo & MacKinlay(1988); Poterba and Summers (1988) provided contradictory results of randomwalk characteristic by introducing behavioural factors and thus concluded thatthe returns of the stock market are predictable upto an extent.These resultsmake random walk and efficient market hypothesis theories debatable. (Osborne, 1962; Jensen, 1978;Black, 1986; Poshakwale, 1996; Ko & Lee (1991) studied and claimed that forrandom walk hypothesis to hold, it was required that market is showing weakform of efficient market hypothesis but vice versa is not true. Therefore, thisevidence argued.
Kendal (1953) found that wheremarket and current stock prices tend tofollow random walk it means that prices of stocks are mutually exclusive andnot dependent on each other as well as losses and gains. Malkiel (2003) suggested that Random Walk is aterm which is loosely used in finance to feature price series where currentprice change is random departure from the historical prices. So broadly it canbe implied that randomwalk means that investor who has no information if purchasea diversified portfolio may obtain a rate of return as closed as achieved byexpert who has information and access to news.Gupta & Basu (2007) observedthat if the market is strong form of efficient market hypothesis then the price of stocks will show the estimatedrisk and return expected, if assume that all information is available to investorsat that point of time.Lagoard & Lucey (2008) foundthat if the market is efficient strongly by information then it establishes astrong relationship between activities of stock market and economic growth. Oncontrary if market is inefficient that can turn into profit making strategies throughtechnical analysis and strategies.
Ngene, A.Tah & Darrat (2017)in their study on new evidence on multiple structural breaks in emerging marketin the presence of sudden and gradual multiple structural breaks, examine 18emerging markets to check whether they follow random walk or mean reversionprocess . The found evidences that multiple structural breaks were present andthe results are consistent with hypothesis of random walk, however when theyused single break tests, rejected the hypothesis.