SEWELL, Martin, 2011. History of the efficient market hypothesis. Research Note RN/11/04, University College London, London.
Year 

1565  The prominent Italian mathematician, Girolamo Cardano, in Liber de Ludo Aleae (The Book of Games of Chance) wrote: “The most fundamental principle of all in gambling is simply equal conditions, e.g. of opponents, of bystanders, of money, of situation, of the dice box, and of the die itself. To the extent to which you depart from that equality, if it is in your opponents favour, you are a fool, and if in your own, you are unjust.” 
1828  Scottish botanist, Robert Brown, noticed that grains of pollen suspended in water had a rapid oscillatory motion when viewed under a microscope. 
1863  A French stockbroker, Jules Regnault, observed that the longer you hold a security, the more you can win or lose on its price variations: the price deviation is directly proportional to the square root of time. 
1876  Samuel Benner, an Ohio farmer, authored Benner’s Prophecies of Future Ups and Downs in Prices in which he wrote “The price of any product is the exponent of the accumulated wisdom of the country in regard to the available supply and prospective demand for that product...” Thanks to Chris Dennistoun for this reference. 
1880  The British physicist, Lord Rayleigh, (through his work on sound vibrations) is aware of the notion of a random walk. 
1888  John Venn, the British logician and philosopher, had a clear concept of both random walk and Brownian motion. 
1889  Efficient markets were clearly mentioned in a book by George Gibson entitled The Stock Markets of London, Paris and New York. Gibson wrote that when “shares become publicly known in an open market, the value which they acquire may be regarded as the judgment of the best intelligence concerning them.” 
1890  Alfred Marshall wrote Principles of Economics. 
1900  A French mathematician, Louis Bachelier, published his PhD thesis, Théorie de la spéculation. He developed the mathematics and statistics of Brownian motion five years before Einstein (1905). He also deduced that “The mathematical expectation of the speculator is zero” 65 years before Samuelson (1965) explained efficient markets in terms of a martingale. Bachelier’s work was way ahead of his time and was ignored until it was rediscovered by Savage in 1955. 
1901  
1902  
1903  
1904  
1905  Karl Pearson, a professor and Fellow of the Royal Society, introduced the term “random walk” in the letters pages of Nature. 
Unaware of Bachelier’s work in 1900, Albert Einstein developed the equations for Brownian motion.  
1906  Bachelier 
A Polish scientist, Marian Smoluchowski, described Brownian motion.  
1907  
1908  Bachelier’s arguments can also be found in André Barriol’s book on financial transactions. 
De Montessus published a book on probability and its applications, which contains a chapter on finance based on Bachelier's thesis.  
Langevin authors the stochastic differential equation of Brownian motion.  
1909  
1910  
1911  
1912  George Binney Dibblee published “The laws of supply and demand”. 
1913  
1914  Bachelier published the book, Le Jeu, la Chance et le Hasard (The Game, the Chance and the Hazard), which sold over six thousand copies. 
1915  According to Mandelbrot (1963) the first to note that distributions of price changes are too “peaked” to be relative to samples from Gaussian populations was Wesley C. Mitchell. 
1916  
1917  
1918  
1919  
1920  
1921  F. W. Taussig published a paper under the title, “Is Market Price Determinate?” 
1922  
1923  Keynes clearly stated that investors on financial markets are rewarded not for knowing better than the market what the future has in store, but rather for risk baring, this is a consequence of the EMH. 
1924  
1925  Frederick MacCauley, an economist, observed that there was a striking similarity between the fluctuations of the stock market and those of a chance curve which may be obtained by throwing a dice. 
1926  Unquestionable proof of the leptokurtic nature of the distribution of returns was given by Maurice Olivier in his Paris doctoral dissertation. 
1927  Frederick C. Mills, in The Behavior of Prices, proved the leptokurtosis of returns. 
1928  
1929  Stockmarket crash in late October. 
1930  Alfred Cowles, the American economist and businessman, founded and funded both the Econometric Society and its journal, Econometrica. 
1931  
1932  Cowles set up the Cowles Commission for Economic Research. 
1933  Alfred Cowles 3rd analysed the performance of investment professionals and concluded that stock market forecasters cannot forecast. 
1934  Holbrook Working concludes that stock returns behave like numbers from a lottery. 
1935  
1936  English economist, John Maynard Keynes has General Theory of Employment, Interest, and Money published. He famously compares the stock market with a beauty contest, and also claims that most investors’ decisions can only be as a result of “animal spirits”. 
1937  Eugen Slutzky shows that sums of independent random variables may be the source of cyclic processes. 
In the only paper published before 1960 which found significant inefficiencies, Cowles and Jones found significant evidence of serial correlation in averaged time series indices of stock prices.  
1938  
1939  
1940  
1941  
1942  
1943  
1944  In a continuation of his 1933 publication, Cowles again reported that investment professionals do not beat the market. 
1945  
1946  
1947  
1948  
1949  Holbrook Working showed that in an ideal futures market it would be impossible for any professional forecaster to predict price changes successfully. 
1950  
1951  
1952  
1953  Milton Friedman points out that, due to arbitrage, the case for the EMH can be made even in situations where the trading strategies of investors are correlated. 
Kendall analysed 22 priceseries at weekly intervals and found to his surprise that they were essentially random. Also, he was the first to note the time dependence of the empirical variance (nonstationarity).  
1954  
1955  Around this time, Leonard Jimmie Savage, who had discovered Bachelier’s 1914 publication in the Chicago or Yale library sent half a dozen “blue ditto” postcards to colleagues, asking “does any one of you know him?” Paul Samuelson was one of the recipients. He couldn't find the book in the MIT library, but he did discover a copy of Bachelier’s Ph.D. thesis. 
1956  Bachelier’s name reappeared in economics, this time, as an acknowledged forerunner, in a thesis on optionslike pricing by a student of MIT economist Paul A. Samuelson. 
1957  
1958  Working builds an anticipatory market model. 
1959  Harry Roberts demonstrates that a random walk will look very much like an actual stock series. 
M. F. M. Osborne shows that the logarithm of commonstock prices follows Brownian motion; and also found evidence of the square root of time rule. Regarding the distribution of returns, he finds ‘a larger “tangential dispersion” in the data at these limits.’  
1960  Larson presents the results of application of a new method of timeseries analysis. He notes that the distribution of price changes is "very nearly normally distributed for the central 80 per cent of the data, but there is an excessive number of extreme values." 
Cowles revisits the results in Cowles and Jones (1937), correcting an error introduced by averaging, and still finds mixed temporal dependence results.  
Working showed that the use of averages can introduce serial correlations not present in the original series.  
1961  Houthakker uses stoploss sell orders and finds patterns. He also finds leptokurtosis, nonstationarity and suspects nonlinearity. 
Independently of Working (1960), Alexander realised that spurious autocorrelation could be introduced by averaging; or if the probability of a rise is not 0.5. He concluded that the random walk model best fits the data, but found leptokurtosis in the distribution of returns. Also, this paper was the first to test for nonlinear dependence.  
John F. Muth introduces the rational expectations hypothesis in economics.  
1962  Mandelbrot first proposes that the tails follow a power law, in IBM Research Note NC87. 
Paul H. Cootner concludes that the stock market is not a random walk.  
Osborne investigates deviations of stock prices from a simple random walk, and his results include the fact that stocks tend to be traded in concentrated bursts.  
Arnold B. Moore found insignificant negative serial correlation of the returns of individual stocks, but a slight positive serial correlation for the index.  
Jack Treynor’s unpublished manuscript: “Toward a Theory of Market Value of Risky Assets”  
1963  Berger and Mandelbrot propose a new model for error clustering in telephone circuits, and if their argument is applicable to stock trading, it might afford justification for the ParetoLevy distribution of stock price changes claimed by Mandelbrot. 
Granger and Morgenstern perform spectral analysis on market prices and found that shortrun movements of the series obey the simple random walk hypothesis, but that longrun movements do not, and that “business cycles” were of little or no importance.  
Benoit Mandelbrot presents and tests a new model of price behaviour. Unlike Bachelier, he uses natural logarithms of prices and also replaces the Gaussian distributions with the more general stable Paretian.  
Fama discusses Mandelbrot’s “stable Paretian hypothesis” and concludes that the tested market data conforms to the distribution.  
1964  Alexander answers the critics of his 1961 paper and concludes that the S&P industrials does not follow a random walk. 
Cootner edited his classic book, The Random Character of Stock Market Prices, a collection of papers by Roberts, Bachelier, Cootner, Kendall, Osborne, Working, Cowles, Moore, Granger and Morgenstern, Alexander, Larson, Steiger, Fama, Mandelbrot and others.  
Godfrey, Granger and Morgenstern publish “The Random Walk Hypothesis of Stock Market Behavior”.  
Steiger tests for nonrandomness and concludes that stock prices do not follow a random walk.  
Sharpe’s Nobel prize winning work on the Capital Asset Pricing Model.  
1965  Fama defines an “efficient” market for the first time, in his landmark empirical analysis of stock market prices that concluded that they follow a random walk. 
Samuelson provided the first formal economic argument for “efficient markets”. His contribution is neatly summarized by the title of his article: “Proof that Properly Anticipated Prices Fluctuate Randomly”. He (correctly) focussed on the concept of a martingale, rather than a random walk (as in Fama (1965)).  
Fama explains how the theory of random walks in stock market prices presents important challenges to both the chartist and the proponent of fundamenatl analysis.  
1966  Fama and Blume concluded that for measuring the direction and degree of dependence in price changes, serial correlation is probably as powerful as the Alexandrian filter rules. 
Mandelbrot proved some of the first theorems showing how, in competitive markets with rational riskneutral investors, returns are unpredictable—security values and prices follow a martingale.  
1967  Harry Roberts coined the term “efficient markets hypothesis” and made the distinction between weak and strong form tests, which became the classic taxonomy in Fama (1970). 
1968  Ball and Brown were the first to publish an event study. 
Michael C. Jensen evaluates the performance of mutual funds and concludes that “on average the funds apparently were not quite successful enough in their trading activities to recoup even their brokerage expenses.”  
1969  Fama, Fisher, Jensen and Roll undertook the first ever event study, and their results lend considerable support to the conclusion that the stock market is efficient. 
1970  The definitive paper on the efficient markets hypothesis is Eugene F. Fama’s first of three review papers: “Efficient Capital Markets: A Review of Theory and Empirical Work”. He defines an efficient market thus: ‘A market in which prices always “fully reflect” available information is called “efficient.”’. He was also the first to consider the “joint hypothesis problem”. 
Granger and Morgenstern publish the book The Predictability of Stock Market Prices.  
1971  Kemp and Reid concluded that share price movements were ‘conspicuously nonrandom’. 
Jack L. Treynor published “The Only Game in Town” under the pseudonym “Walter Bagehot”.  
Hirshleifer first noted that the expected revelation of information can prevent risk sharing.  
1972  Scholes studies the price effects of secondary offerings and finds that the market is efficient except for some indication of postevent price drift. 
1973  Samuelson’s survey paper, “Mathematics of Speculative Price”. 
LeRoy showed that under riskaversion, there is no theoretical justification for the martingale property.  
Lorie and Hamilton publish the book The Stock Market: Theories and Evidence.  
Burton G. Malkiel first publishes the classic A Random Walk Down Wall Street.  
Samuelson generalized his earlier (1965) work to include stocks that pay dividends.  
1974  
1975  
1976  Cox and Ross author “The Valuation of Options for Alternative Stochastic Processes”. 
Sanford Grossman describes a model which shows that “informationally efficient price systems aggregate diverse information perfectly, but in doing this the price system eliminates the private incentive for collecting the information.”  
Fama publishes the book Foundations of Finance.  
1977  Beja showed that the efficiency of a real market is impossible. 
1978  Ball wrote a survey paper which revealed consistent excess returns after public announcements of firms' earnings. 
Jensen famously wrote, “I believe there is no other proposition in economics which has more solid empirical evidence supporting it than the Efficient Market Hypothesis.” He defines efficiency thus: “A market is efficient with respect to information set θ_{t} if it is impossible to make economic profits by trading on the basis of information set θ_{t}.”  
Robert E. Lucas, Jr. builds a theoretical model of rational agents which shows that the Martingale property need not hold under risk aversion.  
1979  With a theoretical model, Radner shows when rational expectations equilibria exist that reveal to all traders all of their initial information. 
Dimson reviews the problems of risk measurement (estimating beta) when shares are subject to infrequent trading.  
Harrison and Kreps publish “Martingales and Arbitrage in Multiperiod Securities Markets”.  
Robert J. Shiller shows that the volatility of longterm interest rates is greater than predicted.  
1980  Sanford J. Grossman and Joseph E. Stiglitz show that it is impossible for a market to be perfectly informationally efficient. Because information is costly, prices cannot perfectly reflect the information which is available, since if it did, investors who spent resources on obtaining and analyzing it would receive no compensation. Thus, a sensible model of market equilibrium must leave some incentive for informationgathering (security analysis). 
1981  LeRoy and Porter show excess volatility and market efficiency is rejected. 
Stiglitz shows that even with apparently competitive and “efficient” markets, resource allocations may not be Pareto efficient.  
Shiller shows that stock prices move too much to be justified by subsequent changes in dividends, i.e. excess volatility.  
1982  Milgrom and Stokey show that under certain conditions, the receipt of private information cannot create any incentives to trade. 
Tirole shows that unless traders have different priors or are able to obtain insurance in the market, speculation relies on inconsistent plans, and thus is ruled out by rational expectations.  
1983  
1984  Osborne and Murphy find evidence of the square root of time rule in earnings. 
Roll examined US orange juice futures prices and the effect of the weather. He found excess volatility.  
1985  Werner F. M. DeBondt and Richard Thaler discovered that stock prices overreact; evidencing substantial weak form market inefficiencies. This paper marked the start of behavioural finance. 
1986  Marsh and Merton analyze the variancebound methodology used by Shiller and conclude that this approach cannot be used to test the hypothesis of stock market rationality. They also highlight the practical consequences of rejecting the EMH. 
Fischer Black introduces the concept of noise traders, those who trade on anything other than information, and shows that noise trading is essential to the existence of liquid markets.  
Lawrence H. Summers argues that many statistical tests of market efficiency have very low power in discriminating against plausible forms of inefficiency.  
French and Roll found that asset prices are much more volatile during exchange trading hours than during nontrading hours; and they deduced that this is due to trading on private information—the market generates its own news.  
1987  
1988  Fama and French found large negative autocorrelations for stock portfolio return horizons beyond a year. 
Lo and MacKinlay strongly rejected the random walk hypothesis for weekly stock market returns using the varianceratio test.  
Poterba and Summers show that stock returns show positive autocorrelation over short periods and negative autocorrelation over longer horizons.  
Conrad and Kaul characterize the stochastic behavior of expected returns on common stock.  
1989  Cutler, Poterba and Summers found that news does not adequately explain market movement. 
Eun and Shim found that a substantial amount of interdependence exists among national stock markets, and the results are consistent with informationally efficient international stock markets.  
Ball discusses the specification of stock market efficiency.  
Guimaraes, Kingsman and Taylor edit the book A Reappraisal of the Efficiency of Financial Markets.  
LeRoy publishes his survey paper, “Efficient Capital Markets and Martingales”. He makes it clear that the transition between the intuitive idea of market efficiency and the martingale is far from direct.  
Shiller publishes Market Volatility, a book about the sources of volatility which challenges the EMH.  
1990  Laffont and Maskin show that the efficient market hypothesis may well fail if there is imperfect competition. 
Lehmann finds reversals in weekly security returns and rejects the efficient markets hypothesis.  
Jegadeesh documents strong evidence of predictable behavior of security returns and rejects the random walk hypothesis.  
1991  Kim, Nelson and Startz reexamine the empirical evidence for meanreverting behaviour in stock prices and find that mean reversion is entirely a preWorld War II phenomenon. 
Matthew Jackson explicitly models the price formation process and shows that if agents are not pricetakers, then it is possible to have an equilibrium with fully revealing prices and costly information acquisition.  
Andrew W. Lo developed a test for longrun memory that is robust to shortrange dependence, and concludes that there is no evidence of longrange dependence in any of the stock returns indexes tested.  
The second of Fama’s three review papers. Instead of weakform tests, the first category now covers the more general area of tests for return predictability.  
1992  Chopra, Lakonishok and Ritter find that stocks overreact. 
Bekaert and Hodrick characterize predictable components in excess returns on equity and foreign exchange markets.  
Peter L. Bernstein publishes the book Capital Ideas, an engaging account of the history of the ideas that shaped modern finance and laced with anecdotes.  
Malkiel’s essay “Efficient Market Hypothesis” in the New Palgrave Dictionary of Money and Finance.  
1993  Jegadeesh and Titman found that trading strategies that bought past winners and sold past losers realized significant abnormal returns. 
Richardson shows that the patterns in serialcorrelation estimates and their magnitude observed in previous studies should be expected under the null hypothesis of serial independence.  
1994  Roll observes that in practice it is hard to profit from even the strongest market inefficiencies. 
Huang and Stoll provide new evidence concerning market microstructure and stock return predictions.  
Metcalf and Malkiel find that portfolios of stocks chosen by experts do not consistently beat the market.  
Lakonishok, Shleifer and Vishny provide evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.  
1995  Haugen publishes the book The New Finance: The Case Against Efficient Markets. He emphasizes that shortrun overreaction (which causes momentum in prices) may lead to longterm reversals (when the market recognizes its past error). 
1996  W. Brian Arthur, et al. propose a theory of asset pricing by creating an artificial stock market with heterogeneous agents with endogenous expectations. 
Campbell, Lo and MacKinlay publish their seminal book on empirical finance, The Econometrics of Financial Markets.  
Chan, Jegadeesh and Lakonishok look at momentum strategies and their results suggest a market that responds only gradually to new information.  
1997  Andrew Lo edits two volumes that bring together the most influential articles on the EMH. 
Chan, Gup and Pan conclude that the world equity markets are weakform efficient.  
Dow and Gorton investigate the connection between stock market efficiency and economic efficiency.  
1998  Elroy Dimson and Massoud Mussavian give a brief history of market efficiency. 
In his third of three reviews, Fama concludes that, “Market efficiency survives the challenge from the literature on longterm return anomalies.”  
1999  Lo and MacKinlay publish A NonRandom Walk Down Wall Street. 
Bernstein criticizes the EMH and claims that the marginal benefits of investors acting on information exceed the marginal costs.  
Zhang presents a theory of marginally efficient markets.  
Farmer and Lo publish an excellent but brief review article.  
2000  Shleifer publishes Inefficient Markets: An Introduction to Behavioral Finance, which questions the assumptions of investor rationality and perfect arbitrage. 
Lo publishes a selective survey of finance.  
Beechey, Vickery and Gruen’s survey paper.  
Shiller publishes the first edition of Irrational Exuberance, which challenges the EMH, demonstrating that markets cannot be explained historically by the movement of company earnings or dividends.  
2001  Eugene Fama became the first elected fellow of the American Finance Association. 
In an excellent historical review paper, Andreou, Pittis and Spanos trace the development of various statistical models proposed since Bachelier (1900), in an attempt to assess how well these models capture the empirical regularities exhibited by data on speculative prices.  
Mark Rubinstein reexamines some of the most serious historical evidence against market rationality and concludes that markets are rational.  
Shafer and Vovk publish Probability and Finance: It’s Only a Game! which shows how probability can be based on game theory; they then apply the framework to finance.  
2002  Lewellen and Shanken conclude that parameter uncertainty can be important for characterizing and testing market efficiency. 
Chen and Yeh investigate the emergent properties of artificial stock markets and show that the EMH can be satisfied with some portions of the artificial time series.  
2003  Malkiel examines the attacks on the EHM and concludes that our stock markets are far more efficient and far less predictable than some recent academic papers would have us believe. 
G. William Schwert shows that when anomalies are published, practitioners implement strategies implied by the papers and the anomalies subsequently weaken or disappear. In other words, research findings cause the market to become more efficient.  
2004  Timmermann and Granger discuss the EMH from the perspective of a modern forecasting approach. 
2005  Malkiel shows that professional investment managers do not outperform their index benchmarks and provides evidence that by and large market prices do seem to reflect all available information. 
2006  Blakey looked at some of the causes and consequences of random price behaviour. 
Tóth and Kertész found evidence of increasing efficiency in the New York Stock Exchange. 