Investors who want to profitably trade stocks which they believe to be undervalued or overvalued are facing not just transaction costs: also cash constraints and short-selling restriction can hinder them. Intuitively, the more onerous friction may seem to be short-selling: borrowing shares from...

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...

Since Roll (The Journal of Finance 47(1):3-41, 1992) and Heston and Rouwenhorst (Journal of Financial Economics 36:3-27, 1994), there has been a debate whether country factors in international stock returns are typically more variable than sector factors. The addition of emerging markets (EMs)...

Using an international Thomson Reuters Datastream database, where size coverage is unusually wide and data errors have been reduced to a low level, we show that some specification decisions, and especially those related to size, may have a significant impact on asset-pricing test results. We...

Using an international Thomson Reuters Datastream database, where size coverage is unusually wide and data errors have been reduced to a low level, we show that some specification decisions, and especially those related to size, may have a significant impact on asset-pricing test results. We...

This Paper analyses the exchange rate in a ‘no-arbitrage’ or ‘real business cycle’ equilibrium model and provides empirical evidence for this model vis-a-vis PPP. Our contribution is to show, based on a generalization of the equilibrium model of exchange rates, that (i) the test equation...