A Brief History of Market Efficiency

Its about market efficency ...it s not written by me but very usefull

Every finance professional employs the concept of market efficiency. The

theory, evidence and counter-evidence focus on a couple of dozen highly

influential articles published during the twentieth century. We summarise the

origins of and interlinkages between these contributions to the history of

finance.

The concept of efficiency is central to finance. Primarily, the term efficiency is

used to describe a market in which relevant information is impounded into the

price of financial assets. Sometimes, however, economists use this word to refer

to operational efficiency, emphasising the way resources are employed to facilitate

the operation of the market. Most of this review is concerned with the

former definition, namely the informational efficiency of financial markets. At

the end of this paper, we also consider the microstructure of financial markets

which casts some light on the operational efficiency of the market.

In his opening paragraph, Bachelier recognises that ‘past, present and even

discounted future events are reflected in market price, but often show no apparent

relation to price