To illustrate this point, consider how efficient markets theory goes wrong. One very clear example is the pricing of the shares of Royal Dutch and Shell. Royal Dutch and Shell are independently incorporated in the Netherlands and England, respectively. In 1907, they formed an alliance agreeing to merge their interests on a 60-40 basis while remaining separate and distinct entities. All their profits, adjusting for corporate taxes and control rights, are effectively split into these proportions.
Information clarifying the linkages between the two companies is widely available.
If not, there would be clear and easy arbitrage opportunities from dumping the relatively expensive stock and buying the cheaper one. The nearby chart shows the deviations of market values of Royal Dutch and Shell from the 60-40 parity from 1990 to 1999. A closer look at the chart clarifies why the market doesn't bring the relative prices to efficiency. This bet against market inefficiency lost money, and a lot of money if leveraged. In this case, it is said that when Long Term Capital Management collapsed during the Russian crisis, it unwound a large position in the Royal Dutch and Shell trade.