Along with his former partner in crime Albert Edwards, Montier takes on a recent article Lo wrote in the Financial Times touting his supposed new and improved AMH.
......we are less convinced that AMH is a terribly useful concept. 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”.
We’d agree with Prof Lo that the human brain has been designed by a process of evolution, which leaves us potentially ill-equipped to deal with the world in which we now find ourselves. However, evolution is a glacial process, and as such we wouldn't expect human brains to evolve any time soon. So bubbles, booms and busts born of human nature are likely to be with us for the foreseeable future.
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