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The Efficient Frontier Of Long-Short Portfolios

Author

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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)

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.

Suggested Citation

  • Françoise Charpin & Dominique Lacaze, 2002. "The Efficient Frontier Of Long-Short Portfolios," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 5(07), pages 737-756.
    • Handle: RePEc:wsi:ijtafx:v:05:y:2002:i:07:n:s0219024902001717
    DOI: 10.1142/S0219024902001717
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    Keywords

    Long-short strategies; hedge funds;

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