CHAPTER 4
Evidence of Inefficiency in Investor Behavior and Market Behavior
In Chapter 3, I outlined a very logical and rational case for market efficiency. However, for those who follow markets, simple observation makes the notion of market efficiency fairly difficult to swallow. Casual observers who want to accept that arbitrage keeps prices in alignment must be struck by how much the market moves and how much time elapses between significant market movements down and significant movements up. Moreover, those of us who manage a client base are likely equally struck by our clients’ actions in response to extreme market movements and our clients’ desire to chase the story of the day. The efficiency of the stock market is largely predicated on ...
