“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. This is the primary focus of the articles reviewed here. 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.
If capital markets are sufficiently competitive, then simple microeconomics indicates that investors cannot expect to achieve superior profits from their investment strategies. But although this appears self-evident today, it was far from obvious for the majority of the century. Up to the end of the 1950s, there were few theoretical or empirical studies of securities markets; and until Cootner (1964) collated a selection of papers from a wide variety of sources, the literature was dispersed across journals in statistics, operations research, mathematics and economics.”
A brief history of market efficiency.
Published in European Financial Management, Volume 4, Number 1, March 1998, pp 91-193
Elroy Dimson and Massoud Mussavian
London Business School