Estimating the Costs of International Equity Investments

Posted: 27 Oct 2008

See all articles by Piet Sercu

Piet Sercu

FEB at KU Leuven

Rosanne Vanpee

KU Leuven Faculty of Economics and Business

Multiple version iconThere are 2 versions of this paper

Abstract

Generalizing Cooper-Kaplanis (), we estimate implied costs that reconcile international portfolios with InCAPM predictions. Costs depend on home- and host-country characteristics and on interactions; we estimate risk tolerance rather than pre-specifying it; and we control for currency risk, inflation hedging, fixed-interest investments, round-tripping and omitted countries. Estimates for developed markets are lower than reported before, but those for new markets are quite high: 2001-2004 inward shadow costs range from 0.01 %p.a. (US) to 37 (Indonesia). We find that equity home bias is related to a mixture of risks and frictions, such as information asymmetries, institutional factors and explicit costs.

Keywords: G11, G15, F36

Suggested Citation

Sercu, Piet M. F. A. and Vanpee, Rosanne, Estimating the Costs of International Equity Investments. Review of Finance, Vol. 12, No. 4, pp. 587-634, 2008, Available at SSRN: https://ssrn.com/abstract=1289762 or http://dx.doi.org/rfn021

Piet M. F. A. Sercu (Contact Author)

FEB at KU Leuven ( email )

Naamsestraat 69
Faculty of Economics and Business
Leuven, 3000
Belgium
+32 16 32 67 56 (Phone)
+32 16 32 67 32 (Fax)

Rosanne Vanpee

KU Leuven Faculty of Economics and Business ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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