Arbitraging Mispriced Assets with Separation Portfolios to Lessen Total Risk
University of CEMA
Serie Documentos de Trabajo, Documento Nro. 203
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.
Number of Pages in PDF File: 15
Keywords: arbitrage portfolios, separation portfolios, total risk, systematic risk
JEL Classification: G10, G11, G13working papers series
Date posted: May 22, 2009
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