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Arbitraging mispriced assets with separation portfolios to lessen total risk

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Author Info

  • Rodolfo Apreda

Abstract

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.

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File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/203.pdf
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Bibliographic Info

Paper provided by Universidad del CEMA in its series CEMA Working Papers: Serie Documentos de Trabajo. with number 203.

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Date of creation: Nov 2001
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Handle: RePEc:cem:doctra:203

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Related research

Keywords: arbitrage portfolios; separation portfolios; total risk; systematic risk;

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References

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  1. Rodolfo Apreda, 2001. "Arbitrage Portfolios," CEMA Working Papers: Serie Documentos de Trabajo. 184, Universidad del CEMA.
  2. Rodolfo Apreda, 2000. "A transaction costs approach to financial assets rates of return," CEMA Working Papers: Serie Documentos de Trabajo. 161, Universidad del CEMA.
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Cited by:
  1. Rodolfo Apreda, 2003. "Simple and enlarged separation portfolios. On their Use when Arbitraging and Synthesizing Securities," CEMA Working Papers: Serie Documentos de Trabajo. 233, Universidad del CEMA.

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