The plausibility of risk estimates and implied costs to international equity investments

Lieven De Moor, Piet Sercu and Rosanne Vanpée

Journal of Empirical Finance, 2010, vol. 17, issue 4, 623-644

Abstract: 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 estimate, but for emerging markets this is not the case. Many required expected returns implied by unconditional risk estimates defy credibility, both a priori and empirically. More sophisticated volatility estimates based on a dynamic risk model a la Bekaert and Harvey (1997) lead to implicit costs that are far more credible, but the results remain fragile.

Keywords: Home; bias; Investment; costs; Information; Emerging; markets; Risk; estimates; GARCH (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: The plausibility of risk estimates and implied costs to international equity investment (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:empfin:v:17:y:2010:i:4:p:623-644

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