Perfect capital market

The model of perfect capital market in describing neoclassical capital market theory one on assumptions based capital market , it found in the form in this reality does not exist.

General

The perfect capital market can be traced back to the theory of the perfect market in economics , the premises of which can be adopted in the construction of a perfect capital market, because the capital market represents a sub-market of the market like the goods market .

Both the classics and the neoclassical capital market theory initially assume the ideal-typical state of perfect capital markets. In reality, however, there is a capital market imperfection due to transaction costs , information asymmetries , limited rational behavior, liquidation costs and non- risk-diversified portfolios . Even if there is no perfect capital market in reality, the concept of the perfect capital market is suitable for making connections clear and for gaining knowledge.

Market structure

The capital market is the sub-market of the financial market where the medium and long-term capital requirement meets the capital supply. Market participants are companies in the financial sector , in particular stock exchanges , financial conglomerates , institutional investors , credit institutions , private investors , insurers and companies in the non-banking sector . Trading objects are financial instruments , financing instruments or financial products . The price on the capital market is called interest .

Premises

In terms of rational behavior, the perfect capital market describes a fictitious market that has the following characteristics:

• All market participants make their individual decisions based on the same, well-known expectations about the future ( expected value , variance , covariance ).
• There are no preferences between suppliers and buyers on the following levels :
  • personally (e.g. through advertising ),
  • time ( opening times ),
  • factual ( service level ),
  • spatial ( location advantages , point market ).
• Complete market transparency , because all information is available to all market participants simultaneously, immediately and free of charge.
• There are therefore no transaction costs and no information costs .
• Homogeneity (standardized product quality and standards of the commercial objects).
• The commercial objects are infinitesimally divisible as required. Loans , capital , money or refinancing are available in unlimited amounts at any time.
• No distinction is made between equity and debt , which means that there is only one uniform and constant market interest rate and the market participants behave as volume adjusters .
• Immediate adjustment of all market participants to changes in market data . Market participants can quickly to changes in market volume and market price react as there are no time delays ( English time lags ) are.
• Profit maximization for companies , utility maximization for private households .
• There is complete competition between the providers .
• The perfect capital market is a spatial and temporal point market .

From these conditions it follows that a perfectly balanced capital market offers no possibility of arbitrage , it is arbitrage-free . Not all authors agree with the totality of these premises, but only prefer some of them; the list is for the sake of completeness. One speaks of an imperfect capital market (also called imperfect capital market ) if at least one of the preceding assumptions is not fulfilled.

application

In business administration and economics , a perfect capital market is assumed for various theories or models. For example, the Capital Asset Pricing Model (CAPM) explains the relationship between the expected return and the return risk in the capital market equilibrium for securities traded on a semi-perfect capital market. Also arbitrage pricing theory , the Modigliani-Miller Theorem and the investment theory make use of the premises of a perfect capital market. In addition, this construct is used in macroeconomic analysis, such as in monetary exchange rate theory and Ricardian equivalence .

If the assumption of certain expectations is given up in favor of uncertainty , models arise in particular that result from the existence of asymmetrical information distribution . The Lemons problem investigated by George A. Akerlof , which can also be transferred to capital markets, has become known. The process of price differentiation is generally known in this context . This is used in real capital markets, for example, for credit conditions that are linked to the rating by rating agencies .

Imperfect capital markets

Given certain expectations, different debit and credit interest rates are the most significant case of market imperfections. Investment and financing are then no longer interchangeable at will, but are associated with additional costs, and different alternatives can lead to different payment flows and thus yields that differ from the market interest rate . Furthermore, transaction costs and the influence of the demand side on pricing can be modeled.

The imperfection of the capital market provides an important argument for explaining the existence of banks , because

• there is no equal market access for all market participants,
• non-tradable financial instruments must remain in the books of the bank,
• there are behavioral risks in the lending business as well as within the bank and
• Taxes have a distorting effect on bank prices.

See also

• Capital market theory
• Complete capital market

Individual evidence

1. ↑ Andrei Shleifer, Inefficient Markets: An Introduction to Behavioral Finance ff, 2000, p. 1857
2. ↑ Bernd Rudolph, Corporate Finance and Capital Markets , 2006, p. 47
3. ↑ Bernd Rudolph , Unternehmensfinanzierung und Kapitalmarkt , 2006, p. 28 ff. ISBN 9783161473623
4. ↑ Jochen Gann, International Investment Decisions of Multinational Enterprises , 1996, p. 44 f.
5. ↑ Wolfgang Cezanne, Allgemeine Volkswirtschaftslehre , 10th edition, 2005, p. 156
6. ↑ Arnold Heertje / Heinz-Dieter Wenzel, Basics of Economics , 2001, pp 132 et seq.
7. ↑ Wolfgang Cezanne, Allgemeine Volkswirtschaftslehre , 10th edition, 2005, p. 156
8. ^ Alfred Eugen Ott, Grundzüge der Price Theorie , 1979, p. 32 ff.
9. ^ Siegfried G. Häberle, Das neue Lexikon der Betriebswirtschaftslehre , Volume AE, 2008, p. 662
10. ^ Willi Albers / Anton Zottmann, Concise Dictionary of Economics (HdWW) , Volume 5, 1980, p. 106
11. ↑ Jochen Gann, International Investment Decisions of Multinational Enterprises , 1996, p. 44
12. ^ Wolfgang Breuer , Investment I: Decisions in Security , Gabler Verlag, 3rd edition, 2007, p. 46, ISBN 9783834905598
13. ^ Siegfried G. Häberle, Das neue Lexikon der Betriebswirtschaftslehre , Volume AE, 2008, p. 178