Short Selling and Efficient Sets

Abstract

The effect of short selling on the composition and location of the efficient set has been analyzed in a variety of ways. However, the situation typically facing investors where the initial margin requirement is less than 100 percent and the riskfree interest rate that is paid on the short proceeds is less than the rate paid on initial margin has not previously been considered. The Elton‐Gruber‐Padberg algorithm (1976, 1978), subject to certain modifications, is shown here to be capable of identifying the efficient set under such conditions.

Portfolio Optimization with Factors, Scenarios, and Realistic Short Positions

“…The results reported in this paper generalize a result due to Alexander (1993) and Kwan (1995). Their results apply to the Elton et al (1976) algorithm.…”

Active portfolio management with benchmarking: Adding a value-at-risk constraint

“…This characterization differs from those of the constrained mean-variance boundary provided byAlexander and Baptista (2004, 2006) in two respects. First, constrained mean-TEV portfolios exhibit three-fund separation, while constrained mean-variance portfolios exhibit two-fund separation.…”

“…For an examination of the mean-variance boundary when short selling is allowed but with certain restrictions attached to it, see, for example, Alexander (1993) and references therein.…”

Active portfolio management with benchmarking: A frontier based on alpha

“…35 For an examination of the mean-variance frontier when short sales are allowed but with certain restrictions attached to them, see, e.g., Alexander (1993) and references therein. Bajeux-Besnainou et al (2007) and Alexander and Baptista (2008) explore the effect of, respectively, portfolio weight constraints and short sales constraints on the mean-TEV frontier.…”