Short Selling and Efficient Sets

Gordon Alexander

Journal of Finance, 1993, vol. 48, issue 4, 1497-1506

Abstract: The effects 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 risk-free 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. Copyright 1993 by American Finance Association.

Date: 1993
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