6.2 THE MARKOWITZ PROBLEM WITHOUT SHORT SALES
CAPM Tutor allows you to see the effects of prohibiting short sales in the subject "Capital Asset Pricing Model." Click the "No" button, under the heading "Short Sales," and you will see the new frontier. This frontier lies inside the frontier with short sales, because the restriction of no short selling reduces the number of possible portfolios that can be formed.
The frontier starts at the security with the lowest expected return and ends at the one with the highest. This is because no portfolio weight can be negative. To see this, consider that to get a return greater than that of the highest expected return security, you would have to invest more than 100% of your wealth in that security. This means you would have to short sell some other security. We describe the general problem in topic 6.3, Derivation Without Short Sales.
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