American Finance Association
Efficient Capital Markets: A Review of Theory and Empirical Work Author(s): Eugene F. Fama
Source: The Journal of Finance, Vol. 25, No. 2, Papers and Proceedings of the Twenty-Eighth Annual Meeting of the American Finance Association New York, N.Y. December, 28-30, 1969 (May, 1970), pp. 383-417
Published by: Wiley for the American Finance Association
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SESSION TOPIC: STOCK MARKET PRICE BEHAVIOR
SESSION CHAIRMAN: BURTON G. MALKIEL
EFFICIENT CAPITAL MARKETS: A REVIEW OF
THEORY AND EMPIRICAL WORK*
THE PRIMARYROLE of the capital market is allocation of ownership of the
economy'scapitalstock.In generalterms,theideal is a marketin whichprices provideaccuratesignalsforresourceallocation: that is, a marketin which decisions,and investorscan choose
firmscan make production-investment
amongthe securitiesthat representownershipof firms'activitiesunderthe assumptionthat securitypricesat any time "fullyreflect"all available inA marketin whichpricesalways"fullyreflect"availableinformaformation. tionis called"efficient."
This paper reviewsthe theoreticaland empiricalliteratureon the efficient marketsmodel.Aftera discussionof the theory,empiricalwork concerned subsets
withthe adjustmentof securitypricesto threerelevantinformation set is just
is considered.First,weak formtests,in whichthe information
formtests,in whichtheconhistoricalprices,are discussed.Then semi-strong thatis obviously
adjust to otherinformation
of annual earnings,stocksplits,etc.)
publiclyavailable (e.g., announcements
are considered.Finally,strongformtestsconcernedwithwhethergiveninrelevantfor access to any information
vestorsor groupshave monopolistic
are reviewed.'We shall concludethat,with but a few exprice formation marketsmodelstandsup well.
Though we proceed fromtheoryto empiricalwork,to keep the proper historicalperspectivewe shouldnoteto a largeextentthe empiricalworkin of thetheory.The theoryis presentedfirst
here in orderto moreeasily judge whichof the empiricalresultsare most relevantfromtheviewpointof thetheory.The empiricalworkitself,however, willthenbe reviewedin moreor less historicalsequence.
Finally,the perceptivereaderwill surelyrecognizeinstancesin thispaper whererelevantstudiesare not specifically
discussed.In such cases my apolfor
is so bountifulthat some such
primarygoal here will have been acinjusticesare
main lines of the work on efficient
complishedif a coherentpicture
marketsis presented,along with accuratepictureof the currentstate of thearts.
* Researchon thisprojectwas supported
by a grantfromtheNationalScienceFoundation.I
am indebtedto ArthurLaffer,RobertAliber,Ray Ball, MichaelJensen,JamesLorie, Merton Miller,CharlesNelson,RichardRoll,WilliamTaylor,and Ross Wattsfortheirhelpfulcomments. ** University
of Chicago-JointSessionwiththe Econometric
betweenweak and strongformtestswas...
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