CAPM with Negtive Beta
Hi everyone!
I've found some discussions around negative cost of equity for companies with negative beta and so with cost of debt > cost of equity, but it seems unrealistic and there haven't been any real answers.
So how would you calculate Cost of Equity for a company with a negative Beta?
Thank you!
Really interested to have the answer too.
Are there actual companies with negative betas?
Do a wacc buildup from comps
Find comps. Find unlevered betas. Exclude the negative ones. Use the median. Then relever
Thanks!
Sometimes companies with a negative correlation to the market can have negative betas. Gold companies could be an example. Essentially, you are expected to earn less than the risk-free rate when you buy the stock. Of course, this also means that your discount rate will be super low as well.
After a quick check gold companies don't seem to have a negative beta. It is close to 0 in some cases yes but not negative.
I think you are mixing gold the asset, which has a negative beta, and gold mining companies, which have positive betas (it seems from a quick search) comprised between 0.0-0.5.
Thanks for pointing that out. Makes sense.
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