Edaq

American Finance Association

Efficient Capital Markets: A Review of Theory and Empirical Work
Author(s): Eugene F. Fama
Reviewed work(s):
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: Blackwell Publishing for theAmerican Finance Association
Stable URL: http://www.jstor.org/stable/2325486 .
Accessed: 13/03/2012 06:03
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SESSIONTOPIC: STOCK MARKET PRICE BEHAVIOR
SESSION CHAIRMAN: BURTON G. MALKIEL

EFFICIENT CAPITAL MARKETS: A REVIEW OF
THEORY AND EMPIRICAL WORK*
EUGENE

I.

F. FAMA**

INTRODUCTION

R
THE PRIMARY OLE of the capital market is allocation of ownership of the

p
i
t
t
economy's apitalstock.In general erms, heideal is a marketn which rices
c
provideaccuratesignalsforresourceallocation:that is, a marketin which
decisions,and investorscan choose
firms an make production-investment
c
u
o
a
o
t
amongthe securities hat represent wnership f firms' ctivities nderthe
a
p
assumption hat security ricesat any time "fullyreflect" ll available int
A
i
a
formation. market n whichpricesalways"fullyreflect" vailableinformationis called"efficient."
This paper reviews hetheoreticalnd empiricaliterature n the efficient
o
l
t
a
w
m
o
e
markets odel.Aftera discussion f the theory, mpirical ork concerned
o
subsets
i
p
withthe adjustment f security ricesto threerelevant nformation
set
is considered. irst,weak formtests,in whichthe information is just
F
i
T
form
a
historical rices, re discussed. hen semi-strong tests, n whichtheconp
that
cernis whetherricesefficiently
adjust to otherinformation is obviously
p
s
of
publicly vailable (e.g., announcements annual earnings,tocksplits,etc.)
a
g
w
f
F
are considered. inally,strong ormtestsconcerned ithwhether iveninr
a
vestorsor groupshave monopolisticccess to any informationelevantfor
a
price formationre reviewed.'We shall concludethat,with but a few exm
m
ceptions, heefficient arketsodelstandsup well.
t
w
Though we proceed fromtheoryto empirical ork,to keep the proper
w
w
t
historical erspective e shouldnoteto a largeextent he empirical orkin
p
f
o
T
i
thisarea preceded hedevelopmentf thetheory. he theorys presented irst
t
r
here in orderto moreeasily judge whichof the empirical esultsare most
o
T
w
f
t
h
relevant rom heviewpointf thetheory. heempirical orkitself, owever,
i
willthenbe reviewedn moreor less historicalequence.
s
r
i
i
Finally,the perceptive eaderwill surelyrecognize nstances n thispaper
studiesare not specifically iscussed.In such cases my apolwhererelevant
d
T
t
ogies shouldbe taken forgranted. he area is so bountiful hat some such
g
injusticesare unavoidable.But the primary oal here will have been aci
pcomplishedf a coherent ictureof the main lines of the work on efficient
i
s
a
markets s presented,long withan accuratepictureof the current tate of
thearts.
* Research n thisproject as supported y a grant rom he NationalScienceFoundation.
f
w
t
I
o
b
R
t
am indebted o Arthur affer, obertAliber,Ray Ball, MichaelJensen, amesLorie, Merton
L
J
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Miller, harles elson,...