The Cyber Risk Premium

Hao Jiang (), Naveen Khanna (), Qian Yang () and Jiayu Zhou ()
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Hao Jiang: Eli Broad College of Business, Michigan State University East Lansing, Michigan 48824
Naveen Khanna: Eli Broad College of Business, Michigan State University East Lansing, Michigan 48824
Qian Yang: DeGroote School of Business, McMaster University Hamilton, Ontario L8S 4L8, Canada
Jiayu Zhou: Computer Science and Engineering, Michigan State University East Lansing, Michigan 48824

Management Science, 2024, vol. 70, issue 12, 8791-8817

Abstract: Cyber risk is an important emerging source of risk in the economy. To estimate its impact on the asset market, we use machine learning techniques to develop a firm-level measure of cyber risk. The measure aggregates information from a rich set of firm characteristics and shows superior ability to forecast future cyberattacks on individual firms. We find that firms with higher cyber risk earn higher average stock returns. When these firms underperform, cybersecurity experts tend to have higher concerns about cyber risk, and cybersecurity exchange-traded funds outperform. Further tests strengthen the identification of the cyber risk premium.

Keywords: cyber risk; cybersecurity; risk premium; machine learning (search for similar items in EconPapers)
Date: 2024
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