Question

Explain each of the following methods for the analysis of share prices:

•  Random walk theory

•  Technical (or chart) analysis

•  Fundamental analysis

Answer 1

RANDOM WALK THEORY
According to the random walk theory, stock prices take a random
and unpredictable path. Therefore it is not possible to outperform
the market.
The random walk theory is consistent with the efficient market hypothesis.
According to the efficient market hypothesis, the stock price reflect all
available information and the market price of a stock is the intrinsic value of the stock.
TECHNICAL ANALYSIS
Technical analysis is the analysis that is used to predict future stock prices based on
past market data primarily price and volume.
FUNDAMENTAL ANALYSIS
Fundamental analysis is the analysis of a stocks intrinsic value.
In other words, the analysis involves analysis of the economy,
analysis of the industry, and analysis of financial metrics of a company
to be able to predict the stock price.
Fundamental analysis is used to estimate whether a stock is undervalued
or overvalued in the market.