We consider the optimality of portfolios not subject to short-selling constraints and derive conditions that a universe of securities must satisfy for an optimal active portfolio to be dollar neutral or beta neutral. We find that following the common practice of constraining long–short...

By balancing long positions in equity with short positions of roughly equal dollar amount and market sensitivity, it is possible to construct a portfolio whose return is neutralized against overall market moves. Properly constructed, using an integrated optimization process, a long-short...