It has been said that the CAPM model and related portfolio models represent a form of hedge relationship. Suppose that you are a portfolio manager, and you find a stock that has a negative beta on the market.

(i) What does this mean about its expected return over the coming periods, relative to the risk-free rate?

(ii) Can you rationalize this in terms of the value of such a stock in terms of any specified hedging need?

Suppose, for instance, that the stock is an undertaking firm that specializes in expensive interments for highly strung stockbrokers. Would such a stock have a special value in your portfolio, and why?