Question

Market imperfections do not necessarily imply that national securities markets are inefficient. Develop an argument as to why this is possible.

Answer 1

Market imperfections may arise for various reasons, one of the major reason is the information gap among investors.

Now think about a firm working in domestic and international both segments. Whatever news related to the firm and economic activity in domestic markets are equally available to domestic investors. So the national security market is efficient in this context.

But what will happen when in the international market the firm is operating flow of information related to business activity not readily available to everyone. It will create a scenario of imperfection but still national securities market is efficient.