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.
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)].
(2.) If no riskless asset exists, asset returns are related to the zero-beta portfolio
. A zero-beta portfolio
has zero covariance with the market portfolio.