Investors short sell, Financial Econometrics

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Pythagoras Jones has just inherited $1,000,000 and wishes to invest this sum in the ?ve funds given below.

Fund     Name                                Code               Return                Risk
P1    Aussie Growth Limits              (AG)                   .065               .035
P2    Wealthy People Leverage     (WPL)                   .080                .025
P3    Christmas Stocking Revenues (CSR)                .105                 . 030
P4    Best Haven Protection         (BHP)                    .115                 .040
P5    Cash Bene?t Assets             (CBA)                  .135                  .050

Funds P1, P3 have a negative correlation coe?cient -0.3 and funds P2, P5 a positive correlation cofficient +0.6. All other pairs of funds are uncorrelated. There are no restrictions on short selling and Pythagoras has a risk aversion parameter claculated to be t = 0.005 units.

1. Explain which investors short sell in this market and which funds they short sell. Are there any funds which no-one will short sell?


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