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What is the sign of the risk premium of a negative beta stock? Negative--assuming the market risk premium is positive, the risk premium has the same sign as beta. Stocks have both diversifiable and undiversifiable risk, but only diversifiable risk is rewarded with higher returns.
What is negative beta in stocks?
Indeterminate—not all negative beta stocks have negative risk premiums. B. Negative—assuming the market risk premium is positive, the risk premium has the same sign as beta. C. Positive—all stocks must have positive risk premiums. D. Zero—stocks with a negative beta have zero risk premiums. Expert Answer.
Is a stock with a beta of 1 good or bad?
Explain. (Assume the risk premium of the market portfolio is positive.) (Select the best choice below.) O A. Negative assuming the market risk premium is positive, the risk premium has the same sign as beta. O B. Indeterminate not all negative beta stocks have negative risk premiums. O c. Positive-all stocks must have positive risk premiums. O D. Zero-stocks with a negative …
Can gold have a negative beta?
Sep 08, 2019 · What is the sign of the risk premium of a negative-beta stock? Explain. (Assume the risk premium of the market portfolio is positive.) (Select the best choice below.) A. Zerolong dashstocks with a negative beta have zero risk premiums. B. Positivelong dashall stocks must have positive risk premiums. C. Indeterminatelong dashnot all negative beta stocks have …
What happens to negative-beta investments when the market rises?
Explain. (Assume the risk premium of the marke portfolio is positive.) (Select the best choice below.) O A. Zero-stocks with a negative beta have zero risk premiums. OB. Indeterminate-not all negative beta stocks have negative risk premiums. O C. Positive-all stocks must have positive risk premiums. OD. Negative-assuming the market risk premium is positive, the risk premium …
What does a negative beta mean for a stock?
Is risk premium positive or negative?
What happens to CAPM when beta is negative?
Is risk premium always positive?
What does the risk premium tell you?
What is an example of negative beta?
What does negative alpha mean?
Can a risky asset have a negative beta?
What does negative beta mean in investing?
A negative beta coefficient does not necessarily mean absence of risk. Instead, negative beta means your investment offers a hedge against serious market downturns. If the market continues rising, however, a negative-beta investment is losing money through opportunity risk – the loss of the chance to make higher returns – and inflation risk, in which a low rate of return does not keep pace with inflation. Because the stock market has historically produced a positive return in most years, the mere act of investing in negative-or low-beta stocks increases these risks over time.
What does high beta mean in stocks?
When researching stocks for investment, take a glance at the "beta" number. This value measures the volatility of a stock compared with the volatility of the market as a whole. A high beta means the stock price is more sensitive to news and information, and will move faster than a stock with low beta. In general, high beta means high risk, but also ...
What is the beta value of a stock?
The beta value of the entire stock market, as measured by indexes such as the Standard & Poor's 500, is 1. A stock with a beta value of 1 is just as risky as the stock market as a whole, and its price change generally tracks that of the index. Investors with low tolerance for volatility would seek a stock with a beta value of 1 or lower.
What is zero beta?
An investment with zero beta means no volatility and no risk. This would leave out stocks. Instead, money market funds with a constant share value of $1, certificates of deposit backed by federal deposit insurance, and cash in savings and checking accounts all should have zero beta. The cash in your wallet also has zero beta: The value of a dollar bill will always be $1, and carries no risk of a fluctuation in value. Of course, inflation erodes the purchasing power of money, meaning your zero-beta investment actually loses if it pays interest at less than the rate of inflation.
What is negative correlation?
A negative beta correlation means an investment moves in the opposite direction from the stock market. When the market rises, a negative-beta investment generally falls. When the market falls, the negative-beta investment will tend to rise. This is generally true of gold stocks and gold bullion. Because gold is seen as a more secure store of value than currency, a market crash prompts investors to sell their stocks and either move into cash (for zero beta) or buy gold (for negative beta). Negative beta is an unusual concept, as it pertains to the stock market.
What happens when the market falls?
When the market falls, the negative-beta investment will tend to rise. This is generally true of gold stocks and gold bullion. Because gold is seen as a more secure store of value than currency, a market crash prompts investors to sell their stocks and either move into cash (for zero beta) or buy gold (for negative beta).
Who is Tom Streissguth?
Founder/president of the innovative reference publisher The Archive LLC, Tom Streissguth has been a self-employed business owner, independent bookseller and freelance author in the school/library market. Holding a bachelor's degree from Yale, Streissguth has published more than 100 works of history, biography, current affairs and geography for young readers.
Evaluating Market Beta
- The beta value of the entire stock market, as measured by indexes such as the Standard & Poor's 500, is 1. A stock with a beta value of 1 is just as risky as the stock market as a whole, and its price change generally tracks that of the index. Investors with low tolerance for volatility would seek a stock with a beta value of 1 or lower. In general, bigger companies with more predictable …
Understanding Zero Beta
- An investment with zero beta means no volatility and no risk. This would leave out stocks. Instead, money market funds with a constant share value of $1, certificates of deposit backed by federal deposit insurance, and cash in savings and checking accounts all should have zero beta. The cash in your wallet also has zero beta: The value of a dollar bill will always be $1, and carrie…
The Implications of Negative Beta
- A negative beta correlation means an investment moves in the opposite direction from the stock market. When the market rises, a negative-beta investment generally falls. When the market falls, the negative-beta investment will tend to rise. This is generally true of gold stocks and gold bullion. Because gold is seen as a more secure store of value than currency, a market crash pro…
Risk Factors and Beta
- A negative beta coefficient does not necessarily mean absence of risk. Instead, negative beta means your investment offers a hedge against serious market downturns. If the market continues rising, however, a negative-beta investment is losing money through opportunity risk – the loss of the chance to make higher returns – and inflation risk, in whi...