A columnist in the Economist argues that: The past ten years have dealt a series of blows to efficient-market theory, the idea that asset prices accurately reflect all available information.
In the late 1990s dot-com companies with no profits and barely any earnings were valued in billions of dollars; and in 2006 investors massively underestimated the risks in bundling together portfolios of American subprime mortgages.
a. Explain how the incidents this columnist discusses may be inconsistent with the efficient markets hypothesis.
b. Is it possible that these incidents might have occurred even though the efficient markets hypothesis is correct?