According to investopedia efficent market hypothesis is

The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information...

and random walk theory (RWT) is

Random walk is a stock market theory that states that the past movement or direction of the price of a stock or overall market cannot be used to predict its future movement..

Does both concepts convey the same message but presented as different way? Or EMH and RWT are entirely different concepts?


2 Answers 2


They are different concepts, and the relation between them can be described as a conditional: "if EMH holds (all available information about future price movements is already priced into the market), then future price movements will follow a purely random walk as new and unpredictable information emerges"


Historically the RWT (Random Walk Theory) came first, as empirical observations by for example M.F.M. Osborne (1959) and others in the 1960s. The EMH came about as a result of theoretical work by Samuelson in 1965 ("Proof that properly discounted prices...") and E.Fama (1969) as a general empirical/theoretical hypothesis that guided the field for many decades. The EMH, in addition to this broader scope differs from the RWT as follows: in the RWT the expected return is zero, while in the EMH there is a non-zero expected return "as appropriate compensation the risk being taken", so as Fama always likes to say "tests of the EMH are conditional on a proper model for expected returns". In simple language, in the EMH you can still make money by holding stocks for the long run.

The expression Random Walk Theory is not much used nowadays in the literature, it has been pretty much supplanted by the EMH.


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