The New Market Wizards: Conversations with America's Top Traders

by Jack D. Schwager

Of course, you can’t actually prove that price behavior is random. That’s right. You’re up against the problem of trying to prove a negative proposition. Although the contention that the markets are random is an affirmative proposition, in fact you’re trying to prove a negative. You’re trying to prove that there’s no systematic component in the price. Any negative proposition is very difficult to confirm because you’re trying to prove that something doesn’t exist. For example, consider the negative proposition that there are no chocolate cakes orbiting Jupiter. That may be true, but it’s very hard to prove. The random walk theory has the disadvantage of being a negative proposition. Nevertheless, in the absence of any evidence to the contrary, it might be a plausible theory to maintain. At this point, however, I think there is enough contrary evidence so that any academic who still espouses the idea that the markets are random is not looking at the realities.