Zero-investment portfolio

Zero-investment portfolio

A portfolio of zero net value established by buying and shorting component securities, usually in the context of an arbitrage strategy.

Zero-Investment Portfolio

A portfolio consisting of long positions and short positions with no combined net worth. To give a very simple example, suppose one buys 100 shares in AT&T while simultaneously selling 100 shares; this creates a zero-investment portfolio. A zero-investment portfolio has the advantages of carrying little or no risk and reducing taxes. Obviously, however, there is little or no return on a zero-investment portfolio.
References in periodicals archive ?
For final verification of the occurrence of accrual anomaly in the Brazilian capital market, we constructed a zero-investment portfolio based on the magnitude of accruals.
The procedure generally used to test this property consists of analyzing a zero-investment portfolio.
Bernard, Thomas and Wahlen (1997) pointed out that an anomaly based on accounting numbers will indicate mispricing by the market only if the returns provided by a zero-investment portfolio are consistently positive.
To verify whether a zero-investment portfolio based on accruals produces consistently positive returns in the Brazilian market, we distributed the assets by quintiles formed by the magnitude of the accruals component of earnings, resulting in the composition of five portfolios, one for each quintile (1 to 5).
Specifically, the procedure consists of forming zero-investment portfolios from assets that compose the sample, based on the magnitude of the accruals, and identifying the returns obtained by taking a long (short) position in assets with low (high) accruals and by hedging the returns of assets with extreme accruals.