Year: 2007
Type: article
Abstract: This paper examines portfolio allocation optimality and the corresponding efficient frontiers when using long-short strategies. Then, in the context of investing, we compare several portfolio frontiers corresponding to different constraints on portfolio weights. For a benchmark case such as the Fama-French frontier, we explicitly provide the optimal portfolio weights taking into account long-short positions, within the mean-variance framework. This allows us to accurately examine the proximity of efficient frontiers with and without the use of long-short strategies, by examining the impact of correlations. To this end, we also provide explicit spreads between two Markowitz’s frontiers when one is dominated by the other. As a by-product, we justify why the efficient frontier generated by the market and the five Fama-French long-short factors is very close to that obtained from the market and the ten short and long legs of each of these five factors.JEL Classification G11, G17, C53, C58
Source: EcoRev
Author: Jean-Marie Harribey
Language: French
Field: Decision Sciences
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4404163552