Arbitraging mispriced assets with separation portfolios to lessen total risk

Rodolfo Apreda

No 203, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: This paper expands on a procedure to arbitrage mispriced assets against the benchmark provided by the Security Market Line, but using only separation portfolios to put up a feasible portfolio with the same beta as the mispriced asset and the least total risk among other alternative portfolios. Coming next, such arbitrage is dealt directly with one single separation portfolio, which grants that the total risk linked with the arbitrage portfolio equals the non-systematic risk conveyed by the mispriced asset.

Keywords: arbitrage portfolios; separation portfolios; total risk; systematic risk (search for similar items in EconPapers)
JEL-codes: G10 G11 G13 (search for similar items in EconPapers)
Date: 2001-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:203

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