Random walk theory and testing on Istanbul Stock Exchange

Investors, that pursue to make more profit, have a common goal to predict future prices of securities accurately. In order to reach that goal, various methods and models are developed by academic studies. However, some of these studies obtained some results that security prices follow a random walk. These results brought in a theory to Finance which is called ?Random Walk Theory?.The Random Walk Theory, denotes that security future prices cannot be predicted by using past price movements. According to the Theory, price movements are unpredictable and random like a drunken man?s steps.The general characteristics of the Random Walk Theory and testing methods of the Theory have been explicated within the context of this study. Moreover, the Efficient Markets Hypothesis and the Fair Game Model, which are concerned with the Theory, have been represented and the Theory has been compared with the Technical and the Fundamental Analysis which are most frequently used in predicting security prices.The Random Walk Theory has been tested on Istanbul Stock Exchange by using Run Test, Autocorrelation Test and four different Unit Root Tests. ISE 100, ISE Industry, ISE Service and ISE Finance indexes have been used in these tests. As a results of these tests, Istanbul Stock Exchange has showed ?random walk? in the related period.Key words: Random Walk, Run Test, Autocorrelation Test, Unit Root Test, Stationarity.