their existence on a lagged response of the market prices to the derlying factors governing those prices. It might, at first blush, seem possible that the trends arise not from a lagged response of the market price to the fundamental circumstances, but rather from a trend in those underlying circumstances themselves. Thus although a stock's price might at all times represent a given mul tiple of its earnings, its earnings might be subject to a long run trend, If, however, there are really trends in earnings, so that an increase in earnings this year implies a higher probability of increase next year than do stable or declining earnings, the stock rice right ld reflect these prospects by a higher p and by a higher ratio of price to current earnings. Consequentl if there is no lagged response there should be no trend in prices By a trend in this connection we mean a positive serial correlation of successive changes or, more generally, a probability of future price change dependent on present The professional analysts would certainly not subscribe to th notion that the best picture of the future movements of prices can be gained by tossing a coin or a set of coins. Yet that is just what academic students of speculative markets say is the best way. The academic students of speculative marl the very existence of trends in speculative prices, claiming tha where trends seem to be observable, they are merely interpreta after the fact, of dom walk. A pri k if at any time the change to be expected can be represented by the result of tossing a coin, not necessarily a 50-50 coin, however. In par ticular, a random walk would imply that the next move of the speculative price is independent of all past moves or ever This probabilistic view of speculative prices is consistent with the theoretical bent of economists who like to talk about perfect markets. If one were to start out with the assumption that a stock commodity speculation is afair game' with equal expectation of gain or loss or, more accurately, with an expectation of zero in, one would be well on the way to picturing the behavior of speculative prices as a random walk. But in fact, this picture of a speculative price movement is as much based on empirical findings as on theoretical predispositions. In a pioneer work Bachelier,I a student of the great French mathematician Poincare derived, in his doctoral thesis in 1900, a theory that speculative prices follow random walks, largely from the as sumption of zero expectation of gain. He then compared the statistical dis ibution served distributions of price changes of certain government securities (rentes)on the Paris Bourse, and he found a close cor espondence between the observed distribution and that to be ex pected from his theory. M. L. Bachelier, Theorie de la Speculation, Gauthier-Villars, Paris 1900