I don't understand how the negative rates factor into this and what it means in the market
Beta= .73 rf= (-) 0.0032 mr= (-)0.0264 CAPM = [(-)0.0032 + [(-) 0.0264 – (-) 0.0032]0.73 = ???
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Although Rf can be negative (but not too negative), Rm cannot be less than Rf as in your example. It is a non-equilibrium situation, no one would invest in risky securities if they have an expectation lower than risk-free securities. So Rm > Rf is a necessary assumption of the CAPM, whether rates are positive or negative. Also, algebra is algebra and the CAPM is the CAPM, there is no CAPM2.
The risk free rate can be viewed as the opportunity cost to hold an investment i.e. Every risky investment should at least pay out the risk free rate. This is why you subtract the Rf from the Rm
When yields are negative you would have to add the Rf to Rm meaning you should expect to earn a much lower return [everything else held constant]:
CAPM1= negative interest rates CAPM2= positive interest rates Beta= .73 rf= (-) 0.0032 mr= (-)0.0264 CAPM1= [(-)0.0032 + [(-) 0.0264 – (-) 0.0032]0.73 = -2.0136% CAPM2= [0.0032 + [(-) 0.0264 – 0.0032]0.73 = -1.8408%
Remember that CAPM is the expected return on the investment