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1

Efficient frontier

- locus of all non-dominated portfolios in the mean-standard deviation space
- By definition, no ("rational") mean-variance investor would choose to hold a portfolio not located on the efficient frontier
- The shape of the efficient frontier is thus of primary interest

2

Short Selling - explain

- Borrow a stock, sell it to cash in and then restore it to the original owner by buying it back later
- Possible to go short in order to gain on expectations that stock price will decline

3

Frontier Portfolio

is a portfolio which displays minimum variance among all feasible portfolios with the same expected return