Capital Mobility and Asset Pricing

We present a model for the equilibrium movement of capital between markets.Two markets with symmetrically distributed risks are distinguished only by the levelsof capital invested in the two markets. That market with the greater amount of capitalearns lower conditional mean returns. Intermediaries optimally trade off the costs ofintermediation against fees that depend on the gain they can offer to investors formoving their capital to the market with the higher mean return.[...]