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Perfect Market Assumptions

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Perfect market assumptions
Conditions under which the law of one price holds. The assumptions include frictionless markets, rational investors, and equal access to market prices and information.

Perfect Market Assumptions
The assumptions under which a market or an economy is entirely efficient. Perfect market assumptions include equal access to information by all market participants, completely rational economic actors, and no transaction costs (such as taxes). Perfect market assumptions rarely, if ever, hold true in the real world.


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The Efficient Capital Market Hypothesis (ECMH) also builds on perfect market assumptions.
Given the role of liquidity in the performance of portfolio insurance in the crash of 1987 and in the collapse of LTCM, it has perhaps revealed itself as the Achilles' heel of finance built on perfect market assumptions.
 
 
 
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