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Discussion Paper Details

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Title: Trading Fees and Slow-Moving Capital

Author(s): Adrian Buss and Bernard J Dumas

Publication Date: July 2015

Keyword(s): frictions, general equilibrium, slow-moving capital and Trading fees

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Buss, A and Dumas, B. 2015. 'Trading Fees and Slow-Moving Capital'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10737