Comparing the two optimal risky portfolios (one allowing short selling and the other long-only), what do you find regarding the Sharpe Ratios?

Q: Comparing the two optimal risky portfolios (one allowing short selling and the other long-only), what do you find regarding the Sharpe Ratios?

or

Q: What do you discover about the Sharpe Ratios when you compare the two ideal risky portfolios (one that permits short selling and the other that only permits long selling)?

• When short selling is allowed, the portfolio is able to attain a higher level of Sharpe Ratio
• When only long selling is allowed, the portfolio is able to attain a higher level of Sharpe Ratio
• The Sharpe Ratio is the same

Explanation: When short selling is allowed, the portfolio typically has more flexibility to optimize the asset weights, often leading to a higher Sharpe Ratio. This is because short selling enables the portfolio to offset risks more effectively and leverage assets that offer the best return relative to risk.