Following sentence appears under Table 10 of Example 10 in SS11:
[content removed by moderator]
Might this be an Erratum?
I think this part should read as
If the exchange rate is NOT a random walk, its current value will be an extremely good predictor of its value in the next period, and thus the _R_2 will be extremely high.
The original post’s language looks correct. The “random” part of the walk is the CHANGE. Therefore, imagine a bell curve with the middle being the original value. In that case then the next value will have an equal chance of being +/- a certain value above/below the original. But the best guess of what it will be will be the same original value.
Since the bell curve is normally distributed then the average change would be assumed to be 0.
The text as written is correct.
Agree that this looks correct. If you haven’t read through it yet the Quant topic covers random walks which should hopefully help to make the rationale a little clearer.