Perfect Capital Market

To simplify the math and prove things we make some assumptions. Because we like rules and theories to be clean and universal, we describe their requirements as "perfect".

Such a perfect market has:

• all assets infinitely divisible
• zero transaction costs (in economic terms)
• equal borrowing and lending rates
• unlimited borrowing/lending
• equal information
• a "large" number of investors

The degree to which real markets adhere to these assumptions is generally the benchmark of their purity and correctness. Unhealthy markets do not exhibit one or more of these characteristics.

Of course, a really perfect capital market is one in which I, and I alone can break all those rules...