a$.$ Define a random walk process Lectwie $7-8$

a$.$ Define a random walk process.

$[5$ marks$]$

b$.$ Define a martingale process and explain intuitively why it is that a martingale

process need not be a random walk process, but a random walk process must

be a martingale process.

$[10$ marks$]$

c$.$ With the aid of an appropriate diagram, explain how the cumulative abnormal

return will respond to a good$-$news shock reaching the market when the market

is efficient. How does the cumulative abnormal return deviate from this

response in practice?

$[10$ marks$]$

$[5$ marks$]$

b$.$ Define a martingale process and explain intuitively why it is that a martingaleprocess need not be a random walk process, but a random walk process mustbe a martingale process.

$[10$ marks$]$

With the aid of an appropriate diagram, explain how the cumulative abnormalC.return will respond to a good$-$news shock reaching the market when the marketis efficient. How does the cumulative abnormal return deviate from thisresponse in practice?