Thus, Fama makes operational Samuelson's martingale requirement for properly anticipated prices by showing that it is possible to reject the martingale property (and hence, market efficiency) by using only a subset of the information available to any (or for that matter, all) investors, As Fama makes clear in his development of the strong, semi-strong, and weak versions of the efficient market theory
, it is also possible for speculative prices to satisfy the martingale conditions for one information set but not to satisfy it for another.
In its strong form, efficient market theory
posits that all information, whether public or not, is reflected in security prices.
The theory is not easy to sum up, but it is a convincing counter to the efficient market theory
which may itself have contributed to the recent lift off in U.S.
prices stay at the level predicted by efficient market theory
even as the informed's share of the wealth approaches zero.
The efficient market theory
argues that, over time, the market will accurately evaluate all information on the firm and its outputs (Fama, 1974, 1991).
For the last twenty years, the most widely circulated academic theory about the stock market has been the "efficient market theory
." The theory is simple: to know what the stock market will do tomorrow, you just toss a coin.
When he gets around to economics, Cochrane aims his blows at two points: Krugman's attack on the "efficient market theory
" and his advocacy of "fiscal stimulus" for depressed economies.