What the hack: Systematic risk contagion from cyber events
Shaen Corbet () and
Constantin Gurdgiev ()
International Review of Financial Analysis, 2019, vol. 65, issue C
This paper examines the impact of cybercrime and hacking events on equity market volatility across publicly traded corporations. The volatility influence of these cybercrime events is shown to be dependent on the number of clients exposed across all sectors and the type of the cyber security breach event, with significantly large volatility effects presented for companies who find themselves exposed to cybercrime in the form of hacking. Evidence is presented to suggest that corporations with large data breaches are punished substantially in the form of stock market volatility and significantly reduced abnormal stock returns. Companies with lower levels of market capitalisation are found to be most susceptible. In an environment where corporate data protection should be paramount, minor breaches appear to be relatively unpunished by the stock market. We also show that there is a growing importance in the contagion channel from cybersecurity breaches to markets volatility. Systematic weakness in the existent mechanisms for cybersecurity oversight and enforcement could be improved through the ring-fenced incentivisation of both current and ex-hackers. Their expertise is central to the identification of weak corporate cybersecurity practices.
Keywords: EGARCH; Financial markets; Cybercrime; Regulation (search for similar items in EconPapers)
JEL-codes: G15 G32 G38 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:65:y:2019:i:c:s1057521919300274
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