The theory presumes that if, say, Ford’s stock was too low, a handful of smart investors could buy Ford shares until they forced the price up to its efficient level. But in reality there is a limit to smart investors’ firepower; they may lack sufficient cash to keep buying Ford until it hits its rational level. When a whole market is out of kilter, the smart investors are especially likely to fall short. They might know that Japan’s equity bubble—or the dot-com bubble or the mortgage bubble—makes no sense, but they cannot borrow enough to bet against it with the force that would deflate it.
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