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: Blackwell Publishing for the American Finance Association Stable URL: http://www.jstor.org/stable/2325486 Accessed: 30/03/2010 21:28

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Efficient capital markets: a review of theory and empirical work*

This paper tests the relationship between average return and risk for New York Stock Exchange common stocks. The theoretical basis of the tests is the "two-parameter" portfolio model and models of market equilibrium derived from the two-parameter portfolio model. We cannot reject the hypothesis of these models that the pricing of common stocks reflects the attempts of risk-averse investors to hold portfolios that are "efficient" in terms of expected value and dispersion of return. Moreover, the observed "fair game" properties of the coefficients and residuals of the risk-return regressions are consistent with an "efficient capital market"--that is, a market where prices of securities

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Risk, Return, and Equilibrium: Empirical Tests

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

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The behavior of stock market prices

There is an impressive body of empirical evidence which indicates that successive price changes in individual common stocks are very nearly independent. Recent papers by Mandelbrot and Samuelson show rigorously that independence of successive price changes is consistent with an "efficient" market, i.e., a market that adjusts rapidly to new information. It is important to note, however, that in the empirical work to date the usual procedure has been to infer market efficiency from the observed independence of successive price changes. There has been very little actual testing of the speed of adjustment of prices to specijc kinds of new information. The prime concern of this paper is to examine the process by which common stock prices adjust to the information (if any) that is implicit in a stock split

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The Adjustment of Stock Prices to New Information

Some New Stock-Market Indexes

ECONOMISTS have long agreed that the rate of interest on a loan depends on the risks the lender incurs. But how lenders estimate these risks has been left largely to conjecture. This paper presents and tests a hypothesis about the determinants of risk premiums on corporate bonds. By risk premium is meant the difference between the market yield on a bond and the corresponding pure rate of interest. My hypothesis is as follows: (1) The average risk premium on a firm's bonds depends first on the risk that the firm will default on its bonds and second on their marketability. (2) The "risk of default" can be estimated by a function of three variables: the coefficient of variation of the firm's net income over the last

https://www.jstor.org/stable/pdfplus/1827443.pdf

Determinants of Risk Premiums on Corporate Bonds

This chapter examines the investment performance of an index of long-term, high-grade bonds, using the same method of analysis as that appropriate for common stocks. It shows that long-term bonds have given both lower average return and more than proportionately lower dispersion than would have been obtained from holding a well-diversified portfolio of common stocks listed on the New York Stock Exchange. The chapter develops an optimal strategy for bond investments, given a definite time horizon. It analyses a strategy for taking advantage of the specificity of the promises of bonds to eliminate almost completely the riskiness of investments in high-grade bonds caused by unanticipated fluctuations in interest rates. The chapter also shows that an asset nearly free of risk from interest-rate fluctuations can be affected for holding periods of five, ten, and twenty years by appropriate use of high-grade bonds. It suggests that variability of bondholder's returns is, proportionately much less than the average variability of stockholder's returns.

Lawrence Fisher

Papers

The Adjustment of Stock Prices to New Information

Some New Stock-Market Indexes

Determinants of Risk Premiums on Corporate Bonds

Coping with the Risk of Interest-Rate Fluctuations: Returns to Bondholders from Naive and Optimal Strategies

Some Studies of Variability of Returns on Investments in Common Stocks