The two-factor models achieved according to the research carried out by Black, Jensen and Scholes states that a

zero-beta portfolio with an predicted return, Rz surpasses the risk free rate of interest, Rf.

I thought about using the capital asset pricing model to establish a zero-beta portfolio of common stock and warrants by selling enough shares of common stock per each warrant held each period to create a zero-beta portfolio.

In the summer or early fall of 1969, I discussed with Fischer my earlier experience with warrants, my attempt at creating the zero-beta portfolio, and my inability to determine the changing number of shares needed each period to create the zero-beta portfolio.

By substituting for the change in the warrant price as a function of changes in the stock price and time in the warrant asset pricing relation, it became obvious on how to create a zero-beta portfolio that would have an expected rate of return equal to the interest rate (for we assumed a constant interest rate).

For the textile case the zero-beta portfolio return is higher than the risk free return which supports the zero-beta version as suggested in other markets [Jensen (1968)].

The coefficient for miscellaneous industries is positive and almost two times the borrowing rate, which supports the zero-beta portfolio during the reform period.