User:Kiliccelik

Capital Market Imperfections

All the distortions that prevent capital markets to function efficiently are called imperfections in capital market. In a perfect capital market, the equilibrium exists where the interest rates clears the market, which the supply of funds equals to the demand. However, in real world we see many cases in which people can not borrow even though they are willing to pay the market interest rate. The basic source of imperfections in capital markets is informational asymmetry. The basic imperfection of the capital market is the inability to borrow. In an idealized "perfect" market, economist expect the market to "achieve every desired exchange for homogeneous goods when there is only one price" . Based on that, to have a perfect capital market, every agent may exchange funds at the existing single interest rate for each type of fund. However, in real world, we do not see

References

Stigler, George J. (1967), "Imperfections in the Capital Market." Journal of Political Economy, 75(3), pp. 287–292