Why You Are Wrong
From James Montier and Albert Edwards in a letter to the FT refuting Andrew Lo's argument on so-called "Adaptive Market Hypthesis" (the idea that markets are mostly rational except for brief periods of disequilibrium, which then results in market adaptation to return to rational balance):
As we understand it, the AMH provides a halfway house where sometimes markets are irrational and sometimes they are rational. We would argue that the amount of time that markets are rational is near negligible. Instead markets seem to be in a constant state of disequilibrium – moving from boom to bust and back again, rarely if ever stopping off at “normal”.
As one of us has recently argued (Insight, June 25), the efficient markets hypothesis is the financial equivalent of a dead parrot, then the AMH may be a dodo.
Actually, I'd say the current market is more of a labradoodle. Perhaps Schrodinger's Labradoodle.