Efficient Frontier With Margined Short Sales

A short sale occurs when a person sells a second person an asset (security) borrowed from a third person (broker). A short seller seeks to profit from the expected fall in price, which mayor may not take place. The margin here means the specified percentage of the market value of the transaction that the short seller (borrower of security), deposits with the lender (broker), effecting the transaction.

Edward A Dyl, has pointed out that when margined short sales arc feasible, it is possible to construct portfolios that offers the same expected return with lower variance that is, the efficient frontier with margined short sales dominates the efficient frontier without such sales.

reCAPTCHA is required.

Share This