Cyber Attacks and Stock Market Activity

Abstract

I study how financial markets react to unexpected corporate security breaches in the short and the long-term. The main results show that daily excess returns drop, trading volume increases due to selling pressure, and liquidity deteriorates upon the public disclosure of first-time corporate hacking events. The evidence from the search frequency in Google suggests that such short-lived market reaction is due to increasing investors’ attention. Cyber attacks affect firms’ policies in the long run, up to five years after the security breach announcement. These results are consistent with the hypothesis that security breaches represent unexpected negative shocks to firms’ reputations.

Keywords: Security breaches; cyber attacks; market activity; long-term impact; investors’ attention.

JEL Classification: G14, G32, G11