 Linear beta pricing with efficient/inefficient benchmarks and short-selling restrictionsGeorge Diacogiannis and Christos Ioannidis International Review of Financial Analysis, 2022, vol. 81, issue C Abstract: We provide two security pricing models that can be used when short sales of risky securities are not permitted. The first model uses a benchmark located on the expected return-standard deviation efficient frontier without short sales and presents security expected returns as a weighted linear function of two betas, one induced by the benchmark and the other adjusting for the short-sale constraints. The second model uses a benchmark that is inefficient relative to the efficient frontier, does not allow short sales, and expresses security returns as a weighted linear function of three betas:one induced by the inefficient benchmark, and the other two adjusting simultaneously for the short-sales restrictions and the benchmark's inefficiency.These results complement the linear pricing models that link expected returns and betas by allowing, for efficient or inefficient expected return-standard deviation, benchmarks with restricted short sales. Keywords: CAPM; Unrestricted efficient frontier; Restricted efficient frontier; Unrestricted linear beta pricing; Restricted linear beta pricing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:81:y:2022:i:c:s1057521921003173 DOI: 10.1016/j.irfa.2021.102003 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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