In this paper we disentangle, analytically and empirically, the roles of the unit-exposure restriction in Heston and Rouwenhorst (1994). We show that if the purpose is to construct factors, the unit-exposure variance-analysis model can be viewed as just an algorithm that does not really assume a...

We reconsider the costs to international equity investments implied by standard portfolio theory (Cooper and Kaplanis, 1994; Sercu and Vanpée, 2008). Estimated costs are mostly driven by risk estimates, not by asset holdings. For OECD markets, risks are fairly stable and relatively easy to...