I run the following regression:
$$r_i-r_f=a+b(r_m-r_f)+e $$ Now I see that the alpha is not zero and I construct two different zero cost portfolios:
1) 100% long in ($r_i-r_f$) and -b short in ($r_m-r_f$)
2) 100% long in $r_i$ -b short in r_m and borrow/short (1-b) on$ r_f$
I have problems determining the expected returns of the two portfolios and determining if they are the same.
I would appreciate your help a lot!