Understanding systematic risk : an old question with new answers

The opacity of an asset has gained increasing attention in the field of finance and investments over the last two decades, particularly after the financial crisis of 2007-2009. Opacity is broadly defined as the delay in the processing of information about the effect of systematic news on firm value. This thesis examines the relationship between opacity and frequency dependence of beta for both small and large firms. Frequency dependence of beta characterises the value of beta due to the investment horizon of underlying returns. The findings indicate that opacity is positively related to the frequency dependence of beta for large firms at all horizons, for small firms, the relationship is significant at longer and insignificant at shorter horizons. Furthermore, this thesis shows that the volatility of cross-listed stocks co-moves in the long run. The evidence of the co-movement of the covariance of cross-listed stocks is also documented. This co-movement of variance and covariance creates a phenomenon that I call beta discovery. Beta discovery is the efficient and timely incorporation of information into the systematic risk and is affected by the market quality measures such as trading activity, liquidity, and transaction cost. Finally, this thesis investigates the nature of the newly emerging systematic risk, namely the risk of climate change. The individual and firm-level effects of climate risk on the innovation of firms are documented. The findings of this thesis provide evidence that as the carbon footprints of a firm increase, the net inflow of inventors and the overall innovation output of the firms decreases.