OPTIMAL PORTFOLIO SELECTION UNDER INSTITUTIONAL PROCEDURES FOR SHORT SELLING

This study presents and formally justifies a simple ranking approach for optimal portfolio selection under institutional procedures for short selling. It also provides economic insights of the explicit solution of the portfolio problem. The analysis is applicable to different treatments of the short-sale proceeds and any margin deposits. In contrast to previous approaches, it does not require assumptions that overstate short-sale benefits for maintaining analytical tractability, and it can easily identify and filter out securities that are undesirable for investing or for short selling. Thus, this study can enhance the usefulness of portfolio modeling for assisting practical investment decisions.