Scholar Info

Glen Larsen

Professor of Finance


How Short Selling Expands the Investment Opportunity Set

While the theory predicts a minimal role for short selling in a passive investor’s portfolio, the analysis in this research provides a useful framework for thinking about the conditions necessary for short positions to appear in efficient portfolios. This framework provides the basis for later consideration of: (1) how active investors can improve expected portfolio efficiency, ex ante, by short selling and (2) how margin requirements and the escrowing of short sales proceeds affect the feasible asset allocation.