Valiant Defender of the Quants Eric Falkenstein has a very weird post about The Myth of the Rational Market. On Seeking Alpha it's even labeled a "book review," which is even weirder because Falkenstein gives no indication of having read the book. The table of contents, maybe—or I guess it's possible that he read the book but did so in such a state of dudgeon because of the blurb from Nassim Nicholas Taleb on the back cover (Falkenstein can't stand Taleb) that he was unable to digest any of the actual text.
My favorite part of the "review":
imply price changes ('errors'?) are normally distributed. LTCM's
failure, and its positions, were not predicated on the
Black-Scholes-Merton option model's assumptions. No one believes
markets are perfect.
Okay, let's see: I never say in the book that efficient market theory implies that price changes are normally distributed. I do not attribute LTCM's failure to the Black-Scholes-Merton option model's assumptions. I guess I do push the idea in the book that in the 1960s through 1980s a lot of people at the universities of Chicago and Rochester believed that markets were close to perfect but, well, in the 1960s through 1980s a lot of people at the universities of Chicago and Rochester did believe markets were close to perfect. Straw men, eh?
Anyway, all this is a little disappointing, because I'm a big fan of Falkenstein's Falkenblog and at one point considered sending him my two main chapters on risk measurement (that's chapters 8 and 13, for those of you reading at home) for a sort of stress test. (I didn't simply because I ran out of time.)
But it's not that disappointing. Controversy is good for book sales, and a repost of Falkenstein's screed on Henry Blodget's Clusterstock brought a whole pile of entertaining comments, most of them berating Falkenstein. What I would like best, though, is for Falkenstein to actually read the book— and then go on the debating circuit with me.