THE EFFICIENT FRONTIER OF LONG-SHORT PORTFOLIOS

Françoise Charpin () and Dominique Lacaze
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Françoise Charpin: University of Paris II and OFCE, OFCE, 69, quai d'Orsay, 75007 Paris, France
Dominique Lacaze: University of Paris X-Nanterre, UFR de Sciences Economiques et de Gestion, Université de Paris X-Nanterre, 200, avenue de la République, 92001 - Nanterre cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2002, vol. 05, issue 07, 737-756

Abstract: Long-short strategies are now frequently implemented especially by hedge fund managers, or simply by active equity managers. Nevertheless, in the literature, the superiority of long-short strategies on long-only strategies still remains a debated point. A comparison of these strategies requires an efficient-frontier analysis. However such analysis to be relevant must integrate the specific regulation on long-short portfolios which exists on all stock markets. This paper studies the efficient frontier of long-short portfolios taking into account the regulatory constraints. A numerical resolution is proposed using the American regulations. A comparison with leveraged and unleveraged long-only strategies is presented showing the potential benefits of long-short investing.

Keywords: Long-short strategies; hedge funds (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1142/S0219024902001717

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