if we limit on short sell, does it cause uncertainty of the model? the model here refers the model to create minimum variance frontier does minimum global variance portfolio the smallest return portfolio in efficient frontier?
If the model isn’t constrained, meaning you can short sell, then it creates instability in the efficient frontier. We DO NOT want our models to short sell. The minimum variance portfolio is the portfolio that sits as far left as you can go. The X-axis of the efficient frontier plot is risk so the more we move left the more we reduce standard deviation.
thank you very much, but after study the text, if we short sell, we move along effcient frontier to theright(upper part), if we don’t short sell, we move along effcient frontier down and left. in maximization of portfolio return, we should short sell, why create instability of model?
pg. 416 volume 6. The CFAI explains it better than I could.