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Impact of Financial Markets on Economic Stability and Growth: The Case of Sub-Prime Mortgage Lending - page 22 / 42

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1/23/2015

Jamshid Damooei, PhD

22

Factors Tying All Financial Markets Together

Credit. The shifting of borrowers among markets helps to weld the financial system together and to balance the costs of credit in the different markets.

Speculation and arbitrage. Speculators who gamble on their market forecasts and arbitrageurs who watch for profitable arbitrage opportunities help to level out prices and maintain price consistency among the markets.

Perfect and efficient markets. There is some research evidence suggesting that financial markets are closely tied to one another due to their near perfection and efficiency (this is highly debatable).

Financial markets in the real world. In the real world however, market imperfection and information asymmetry exist.

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