wat is factor pricing? marginal revenue product? when will factor pricing equal to marginal valur product?

Answer 1

International Investment Restrictions and Factor Pricing
Motivated by the original Black (1974), Adler-Dumas (1975), Subrahmanyam (1975) and Stulz (1981) restricted
international capital asset pricing models (ICAPM), we extend Connor's (1984) well-diversified portfolio and factor
pricing construct to the restricted international market case. Analogous to the Errunza-Losq (1985) partially restricted
ICAPM, we identify the pricing implications of multi-factor risk structures in a partially restricted factor economy. To
link the restricted market and factor pricing constructs, we admit ‘local’ or country-specific well-diversified factor
portfolios. As in Connor's ‘global’ well-diversifed factor portfolio case, we find that globally-traded (internationally
unrestricted) factor risks have equal prices across investors (countries). However, binding cross-country investment
restrictions and locally well-diversified factor portfolios result in identical factor risks that have different factor
prices across investors (countries). Therefore, well-diversified factor portfolios do not guarantee one set of global
factor prices in restricted international financial markets.