Eugene F. Fama, in a professional autobiographical essay, “My Life in Finance,” recounts how he came up with the terms “market efficiency” and “efficient markets.”
His Ph.D. thesis, “The Behavior of Stock Market Prices,” published in 1965, along with research by others, laid the groundwork of market efficiency, a pioneering idea in modern investment management.
“I coined the terms "market efficiency' and "efficient markets,' but they do not appear in my thesis,” Mr. Fama, the Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business, wrote in the 27-page monograph. “They first appear in "Random Walks in Stock Market Prices',” which Mr. Fama also wrote and was also published in 1965.
The autobiography — scheduled to appear in December 2011 in the third volume of “Annual Review of Financial Economics,” published by Annual Reviews Inc., a non-profit science publisher — is posted on the Social Science Research Network's website, http://www.ssrn.com.
In an interview, Mr. Fama said, “I don't remember why I chose the terms” efficiency and efficient. The use of the concept spread rapidly and widely to become so dominant “almost all asset-pricing models assume asset markets are efficient,” he wrote, adding: “Asset pricing and market efficiency are forever joined at the hip.”