The term perfect capital market describes a theoretical ideal which serves as the basis for many economic theories and models, of which the modern portfolio theory is the most predominant.
A perfect capital market is defined by the following idyllic properties:
- All market participants exhibit rational behavior.
- All market participants evaluate existing market signals on a constant basis.
- Complete transparency and perfect competition are the norm.
- Fixed market prices cannot be influenced by market participants.
- There are no transaction-related costs (no fees), taxes or information-processing charges.
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Capital Asset Pricing Model (CAPM)
Modern Portfolio Theory (MPT)
Arbitrage Pricing Theory
Single Index Model (SIM)
Using Fractals To Invest Successfully