Can short selling constraints explain the portfolio inefficiency of U.K. benchmark models?

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This study uses the Bayesian approach of Wang(1998) to examine the impact of no short selling constraints on the mean-variance inefficiency of linear factor models in U.K. stock returns and to conduct model comparison tests between the models. No short selling constraints lead to a substantial reduction in the mean-variance inefficiency of all factor models and eliminate the mean-variance inefficiency of some factor models in states when the lagged one-month U.K. Treasury Bill return is higher than normal. In model comparison tests, the best performing model is a six-factor model of Fama and French(2017a), which uses the small ends of the value, profitability, investment, and momentum factors.
Original languageEnglish
Number of pages46
JournalAdvances in Investment Analysis and Portfolio Management
Publication statusAccepted/In press - 21 Aug 2017



  • mean-variance efficiency
  • portfolio constraints
  • Bayesian analysis
  • factor models

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