NOTE: Different Start Time
This paper studies a dynamic cheap-talk communication game to investigate the role of trading commissions in broker-investor relationships. The investor’s optimal portfolio mix depends on a fixed state which is privately known to the broker. The broker’s message space includes an uninformative signal in addition the state space. Market fluctuations imply that the portfolio-mix evolves as a Brownian motion. However, it can be adjusted by the investor at a fixed cost paid to the broker. I characterize the Markov-Perfect Equilibria and show that the portfolio mix has an informational value to the investor because it influences the broker’s incentives for truth-telling. I also show that the option to delay information provision restricts the set of such ‘truth-telling’ portfolio-mix-values. Crucially, delaying information provision is optimal for a subset of parameter values. Finally, this model illustrates a novel mechanism to explain investor over-trading.