The ‘normal’ view of betas is that CAPM-generated betas should not be negative enough to generate negative cost of equity. Yet, some researchers, notably Aktas, E. and W.R. McDaniel (2009), “Pragmatic problems in using beta for managerial finance applications”, Applied Financial Economics, 19:16, 1345-1354
where CAPM-generated costs of equity are less than zero; less than the risk-free rate and less than the company’s marginal cost of debt”. They calculate betas using 60 and 120-monthly returns. They also refer to a “COMPUSTAT file with 8361 companies with listed betas: 925 of these are negative”.
in this essay Discuss, why would CAPM betas fail to properly estimate the true cost of equity? Do you think this problem is more or less prevalent in periods of systemic crises (e.g. Global Financial Crisis and the subsequent Great Recession, and during the Covid19 pandemic)? Why? Why not?