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....

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...