publication . Preprint . 2015

Trading Fees and Slow-Moving Capital

Buss, Adrian; Dumas, Bernard J;
Open Access
  • Published: 01 Jul 2015
In some situations, investment capital seems to move slowly towards profitable trades. We develop a model of a financial market in which capital moves slowly simply because there is a proportional cost to moving capital. We incorporate trading fees in an infinite-horizon dynamic general-equilibrium model in which investors optimally and endogenously decide when and how much to trade. We determine the steady-state equilibrium no-trade zone, study the dynamics of equilibrium trades and prices and compare, for the same shocks, the impulse responses of this model to those of a model in which trading is infrequent because of investor inattention.
free text keywords: frictions; general equilibrium; slow-moving capital; Trading fees, jel:G11, jel:G12
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