Capital Mobility and Asset Pricing

Darrell Duffie*, Bruno Strulovici

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

31 Scopus citations


We present a model for the equilibrium movement of capital between asset markets that are distinguished only by the levels of capital invested in each. Investment in that market with the greatest amount of capital earns the lowest risk premium. Intermediaries optimally trade off the costs of intermediation against fees that depend on the gain they can offer to investors for moving their capital to the market with the higher mean return. The bargaining power of an investor depends on potential access to alternative intermediaries. In equilibrium, the speeds of adjustment of mean returns and of capital between the two markets are increasing in the degree to which capital is imbalanced between the two markets, and can be reduced by competition among intermediaries.

Original languageEnglish (US)
Pages (from-to)2469-2509
Number of pages41
Issue number6
StatePublished - Nov 2012


  • Capital mobility
  • Financial intermediation
  • Law of one price
  • Market frictions

ASJC Scopus subject areas

  • Economics and Econometrics


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