MICHEL PIREU: It took a financial crisis to show markets do not always know best
The efficient market hypothesis holds that nobody can beat the market, but it is too much of a devilish thing
As Justin Fox recounts in The Myth of the Rational Market: On the fourth Thursday of October in 2008, 82-year old Alan Greenspan paid a visit to Capitol Hill to admit that he had misunderstood how the world works. The chairman of the house committee on government oversight and reform summed up Greenspan’s explanation by saying, “In other words, you found that your view of the world was incorrect, that your ideology, was not right. It was not working.”
“Precisely,” replied Greenspan, “That’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.”..