Question

Under the CAPM, an asset with a lower standard deviation than the market can never have a β less than −1. True or false?

Answer 1

False, under CAPM an assets with a lower standard than the market can have a beta less than -1 .

Solved it in example for easy understanding.

	A	Probability	x-x	Variance	Market Return	Probability	m-M	Variance	Covariance
0.2	-5	-1	5.5	30.25	5	1	-2.2	4.84	-12.1
0.5	-10	-5	0.5	0.25	7	3.5	7	49	3.5
0.3	-15	-4.5	-4.5	20.25	9	2.7	9	81	-40.5
		-10.5		16.9166667		7.2		44.94667	-49.1
			SD of Stock	4.11298756			SD of Market	6.704228	-16.366667
								Beta	-2.4412457

Thanks . Hope this helps.