Discuss NACVA CVA Exam Topic 6 Question 125

It is possible (although not very common) for a security to have a negative beta (i.e. a beta less than zero). Such a beta would indicate that:

AIt is the result of aggressive securities

BBetas for small and publicly traded companies are often unreliable

CThe returns of these securities are countercyclical to the returns of the board investment market index.

DRisk-free return would be greater

Suggested Answer: C

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25 comments · newest first

Marshall 2 days ago

D doesn’t fit. A negative beta doesn’t imply higher risk-free returns.

Ling 8 days ago

I feel like B is true too, small companies can be unpredictable.

Misty 13 days ago

A is misleading. Aggressive securities usually have positive beta.

Sharen 18 days ago

Agreed! C shows how it reacts to market changes.

Terina 23 days ago

I think C makes the most sense. Negative beta means opposite movement.

Colby 28 days ago

True, but C really captures the essence of negative beta.

Arlene 1 month ago

I feel like B is valid too. Small companies can have unreliable betas.

Isadora 1 month ago

A is a stretch. C explains the relationship better.

Amalia 1 month ago

I’m not so sure about C. What about A? Aggressive securities could lead to negative beta.

Claudia 2 months ago

Agreed! C makes sense. Countercyclical returns are interesting.

Truman 2 months ago

I think C is the best choice. Negative beta means it moves opposite to the market.

Mohammad 2 months ago

I think the risk-free return wouldn't be greater with negative beta.

Jennie 2 months ago

Betas for small companies can be unreliable, that's true.

Jacob 2 months ago

Wait, how can a security have a negative beta? Sounds odd.

Fidelia 2 months ago

Totally agree, it's rare but interesting!

Anjelica 3 months ago

Negative beta means countercyclical returns.

Layla 3 months ago

I think the risk-free return wouldn't be greater with negative beta.

Kindra 3 months ago

Betas for small companies can be unreliable, that's true.

Belen 3 months ago

Wait, how can a security have a negative beta? Sounds odd.

Shawna 3 months ago

Totally agree, it's rare but interesting!

Solange 4 months ago

Negative beta means countercyclical returns.

Pearly 4 months ago

I vaguely recall that negative beta indicates a security that does well when the market does poorly, so I’m leaning towards C as well.

Shawn 4 months ago

We practiced a question like this before, and I feel like it had something to do with countercyclical returns. Could it be C?

Pearly 4 months ago

I’m not entirely sure, but I think negative beta means the security moves in the opposite direction of the market. Maybe it’s option C?

Benedict 6 months ago

I remember discussing negative beta in class, and I think it relates to how some assets perform when the market is down.

NACVA CVA Exam - Topic 6 Question 125 Discussion