Negative Betas

Paper Summary:

This paper explains that the beta in an investment scenario, which is a measure of the magnitude of the systematic risk involved in an investment, is either positive or negative depending on the positive or reverse movement of the return of the investment in relation to the market trends, taken on an average. The author points out that negative beta stocks are rarely found in the real world markets since they are seen to go against the trend of the market; however, one possible sector, which has negative beta stocks is the gold industry that normally goes against the trend shown by equity markets. The paper relates that, in consonance with the capital assets pricing model (CAPM), the market-driven price of a security would vary in accordance with the variation in its beta. The paper includes a formula and table.

From the Paper:

"But during the last few years, it is quite evident that amidst political uncertainty that has risen in the world that the price of gold has shown material gains when equity markets have indicated recorded sharp decline. Similarly, another commodity that has performed quite well is the oil. As with gold, the oil prices have suffered over most of the past two decades, while the equity prices evidenced a rapid growth. It is only during the recent years that the oil prices have indicated a recovery. The present political uncertainty has made the situation extremely problematic for investors."

Sample of Sources Used:

• Alexander, Gordon J; Benson, George, P. More on Beta as random Coefficient. Journal of Financial and Quantitative Analysis. March 1982. Vol: 17; No. 1; pp. 27-36
• Beta: Gauging Price Fluctuations. 29 July, 2005. Retrieved from http://www.investopedia.com/articles/01/102401.asp Accessed 12 March, 2006
• Cloninger, Dale. O; Waller, Edward R; Bendeck, Yvette; Revere, Lee. Returns on negative beta securities: implications for the empirical SML. Applied Financial Economics. 2004. Vol: 14; No: 6; pp: 397-402
• Davis, James L; Desai, Anand S. Stock Returns, Beta and Firm Size: The Case of Bull, Bear, and Flat Markets. June, 1998. Retrieved from http://info.cba.ksu.edu/desai/beta.pdf Accessed 12 March, 2006
• Damodaran, Aswath. Investment Philosophies: Successful Strategies and the Investors Who Made Them Work. John Wiley & Sons Inc. 2003.

More papers on Negative Betas:

• Persuasive Essay # 142785 : "Negative Effects of Alcohol on My Life"
• Essay # 4481 : "Psychological Profile: Caulfield, Holden - Preliminary Diagnosis: Negative Effectivity, Borderline Schizophrenia"
• Persuasive Essay # 33767 : "The Negative Effects of Abortion"

APA Citation:

MLA Citation: