Eficient Capital Markets 387 course sa Lys much more than the general expected return model summarized by (1). For example, if we restrict (1)by assuming that the expected return on security j is constant over time, then we have f, t+19t says that the mean of the distribution of r, t +1 is independent of the in- nation available at t, t, whereas the random walk model of (7) in addi tion says that the entire distribution is independent of e.5 We argue later that it is best to regard the random walk model as an extension of the general expected return or fair game?efficient markets model in the sense of making a more detailed statement about the economic environment. The "fair game "model just says that the conditions of market equilibrium can be stated in terms of expected returns, and thus it says little about the details of the stochastic process generating returns. a random walk arises within the context of such a model when the environment is(fortu- itously )such that the evolution of investor tastes and the process generating new information combine to produce equilibria in which return distributions repeat themselves through time Thus it is not surprising that empirical tests of the "random walk"model that are in fact tests of "fair game"properties are more strongly in support of the model than tests of the additional(and, from the viewpoint of expected return market efficiency, superfluous)pure independence assumption.(But it is perhaps equally surprising that, as we shall soon see, the evidence against the independence of returns over time is as weak as it is.) D. Market Conditions Consistent with Eficiency Before turning to the empirical work, however, a few words about the market conditions that might help or hinder efficient adjustment of prices to information are in order. First, it is easy to determine suficient conditions for capital market efficiency. For example, consider a market in which(i)there are no transactions costs in trading securities, (ii)all available information is costlessly available to all market participants, and (iii)all agree on the im plications of current information for the current price and distributions of future prices of each security. In such a market, the current price of a security bviously" fully refects"all available information But a frictionless market in which all information is freely available and investors agree on its implications is, of course, not descriptive of markets met in practice. Fortunately, these conditions are sufficient for market efficiency, but not necessary. For example, as long as transactors take account of all on the price level. But though rigorous terminology is usually desirable, our loose use of terms should not cause confusion; and our usage follows that of the efficient markets literature in(7)is usually to include only the past return history, r,t r, t-11 5. The random walk model does not say, however, that past information is of no value in essing distributions of future returns. Indeed since return distributions are assumed to be past returns are the best source of such information. The random walk model does say, however, that the sequence(or the order)of the past returns is of no consequence