<p>CB, </p>
<p>think of it this way: EMT (and finance/portfolio theory) say that the price of a security incorporates all publicly available information. But the theories also state that the price is based on investors EXPECTATIONS of future returns. After all, securities pricing is forward looking, with exceptions to be discussed below. Greenspan’s comments can be interpreted to mean that investors expectations of future returns were irrational, not that current pricing was irrational. In other words, based on the then current expectations or assumptions regarding future earnigns, the then current share price was rational, and the markets efficient. </p>
<p>Regarding CEFs that trade at a discount or premium, this is no surprise and has been known for years. The issue is how to unlock the value of a discount in most cases. The wikipedia link attempts to address the issue of premiums.</p>
<p>Keep in mind that EMT, as interpreted by most folks, does not say that every security will be priced "rationallY (whatever that means!) all the time. Rather, it is the efforts of millions of investors to find opportunity for abnormal returns that continually drives the market, and the price of each individual security to equilibrium. EMT in most forms also is interpreted to say that these efforts to find imperfections have a cost, be it trading costs, information costs, etc. that will ultimately equal the premium to be earned.</p>
<p>On the last note, it might be interesting for you to look at some of the work done in the 1970s that looked at things such as filter rules. Filter rules worked in giving abnormal returns as long as transaction costs were zero. But they were not then (and were a lot higher than now), and these transaction costs ate up those potential abnormal returns.</p>
<p>It is so easy to find so called exceptions to EMT. But the difficulty is to find exceptions that provide the opportunity to earn abnormal returns. the wiki article was stuck on this point.</p>