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Frictionless Market

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Frictionless market
Ideal trading environment that imposes no costs or restraints on transactions.
Market Efficiency
The extent to which the price of an asset reflects all information available. Economists disagree on how efficient markets are. Followers of the efficient markets theory hold that the market efficiently deals with all information on a given security and reflects it in the price immediately, and that technical analysis, fundamental analysis, and/or any speculative investing based on those methods are useless. On the other hand, the primary observation of behavioral economics holds that investors (and people in general) make decisions on imprecise impressions and beliefs, rather than rational analysis, rendering markets somewhat inefficient to the extent that they are affected by people.
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When we apply our structural model to a large sample of recently issued bonds with make-whole call provisions, we find that in a frictionless market where calls only occur when the call is in-the-money, the incremental yield required by bondholders should average only about 2 bp.
What is the cost of financial flexibility? Theory and evidence for ... by Powers, Eric; Tsyplakov, Sergey / Financial Management
In a frictionless market with an unlimited set of price observations available over any interval, it is, quite generally, feasible to perfectly estimate instantaneous volatility if the process is not subject to jumps.
Realized return volatility, asset pricing, and risk management by Andersen, Torben G.; Bollerslev, Tim / NBER Reporter
On the empirical level, a review of the literature reveals that the frictionless market assumption is not a realistic representation of how farmland is actually traded.
Transaction costs and the present value "puzzle" of farmland prices by Lence, Sergio H. / Southern Economic Journal
 
 
 
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