In the neoclassical financing theory the perfect capital market is a construction of acceptance, which is used for the simplification of theoretical models.

Perfect capital market

A theoretical capital market is considered as perfect if all following conditions are fulfilled:

1. Homogeneous expectations and rational behavior: All market participants make their individual decisions due to the same, generally admitted expectations over the future (expectancy value, variance, covariance).
2. Mengenanpasserverhalten: The price for each payment stream is equivalent, independent of whether the restaurant subjects appear as buyers or salesmen. Hence it follows that are and credit interest-corrode are identical. Credits are available in unlimited height.
3. Transaktionskostenlosigkeit: Each action does not have costs, which are due from the action (e.g. taxes, information costs (thus costs of the provision of information to be able to act over at all rationally), completion costs).

From these conditions follows that a equivalent perfect capital market does not offer a possibility of the arbitrage, it is arbitrage-free.

Models

The perfect capital market is one of the fundamental acceptance for many models important in the financing theory as for example the Capital ate Pricing Model, the arbitrage Pricing Theory and the Modigliani Miller theorem. Also in the macro-economic analysis this Annahmenkonstrukt use finds, like for example in the monetary rate of exchange theory and the Ricardiani equivalence.

Imperfect capital market

If one of these conditions is not fulfilled, one speaks of an imperfect capital market (also: imperfekter capital market). Models can be provided by the deviation from these strict conditions, which can illustrate the actual market happening clearly more realistically.

Under the condition of safe expectations are deviating am and credit interest-corrode the most important case for market incompleteness. Investment and financing are then no longer arbitrarily exchangeable, but connected with additional costs, equally different alternatives to different payment stream can lead and thus from the market interest charges deviating net yields. Further transaction costs and the influence of the demand side on the price structuring can be modelled.

Even if the acceptance of safe expectations is given up to favour by uncertainty, develop in particular models, which result from the presence of asymmetrical information distribution. Admits became above all the Lemons problem examined by the George A. Akerlof, which is transferable to capital markets also.

Generally is in this connection the procedure of the price distinction admits. This finds in material capital markets for example with financing conditions application, which are coupled to the evaluation by Ratingagenturen.

Incompleteness and banks

The incompleteness of the capital market supplies an important argument for the explanation of the existence of banks.

In the bank range further incompleteness comes to carrying:

• There is no same Marktzugang for all market participants.
• Nichthandelbare risks must remain in the books of the bank.
• There are behavior risks in the loan business as well as within the bank.
• Taxes have a distorting effect on the prices.

See also

• Capital market
• Complete capital market
• Perfect market (VWL)

Related links

• Script investment and financing, University of Munich

Articles in category "Perfect capital market"

We found here 20 articles.

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