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Trading Fees and Slow-Moving Capital

Bernard Dumas () and Adrian Buss

No 10737, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Trading fees; Slow-moving capital; General equilibrium; frictions (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2015-07
New Economics Papers: this item is included in nep-dge and nep-mst
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