1900 - The Random Walk Theory

Bachelier
Louis Bachelier

In his 1900 doctoral thesis, "The Theory of Speculation," Louis Bachelier set forth his revolutionary conclusion that "there is no useful information contained in historical price movements of securities."1 Therefore, the expected return of speculation is zero (minus costs). Bachelier's theory was rejected by his peers and sat untouched for 60 years until economist Paul Samuelson discovered it. Paul Samuelson, Eugene Fama and others would expand on Bachelier's findings with the ensuing and revolutionary Random Walk Theory, which asserts that stock prices continuously react to new information and therefore move in a random and unpredictable fashion.

    -1 Louis Bachelier, Louis Bachelier’s Theory of Speculation, trans. Mark Davis and Alison Etheridge, (Princeton University 2006)
Step 2Louis BachelierThe Theory of Speculation