Negative Beta Equity Securities as Insurance

Abstract

Theoretically, an equity security with a negative CAPM beta should behave like portfolio insurance in the sense that the security provides a positive return during a market downturn. However, equity securities with negative betas are relatively rare and simply determining that an equity security exhibits a negative beta is not enough for determining if the negative beta equity security will perform in the desired manner. Negative betas can, at times, be attributed to causes that diminish those securities' usefulness as insurance. Some of these causes are explored in this article.