Pricing and Hedging Cybercrime News

72 Pages Posted: 22 Dec 2022 Last revised: 1 Nov 2024

See all articles by Jiatao Liu

Jiatao Liu

Xi’an Jiaotong-Liverpool University

Ian W. Marsh

City University London - The Business School

Yajun Xiao

Xi'an Jiaotong-Liverpool University (XJTLU)

Date Written: December 11, 2022

Abstract

We measure stock cybercrime risk using betas from cybercrime news coverage. Stocks with higher cybercrime sensitivity -- indicated by their betas -- demand lower risk-adjusted returns, implying a negative risk premium for assets hedging against cybercrime fluctuations. Our analysis of 112 significant incidents supports a long-short portfolio strategy that effectively mitigates cybercrime exposure. We pinpoint critical determinants of firms' cybercrime betas, emphasizing the protective roles of corporate governance, human capital, limited industry-wide cyber interactions, and minimal data-centric operations. Our asset pricing results estimate cybercrime-related losses range from $40 to $140 billion, with our hedging strategy potentially averting up to $86 billion annually.

Keywords: Hedging Cybercrime, Corporate Governance, Industry Peers, Digitization, IT Investment

JEL Classification: G11, G12, C13, E20

Suggested Citation

Liu, Jiatao and Marsh, Ian William and Xiao, Yajun, Pricing and Hedging Cybercrime News (December 11, 2022). Available at SSRN: https://ssrn.com/abstract=4299599 or http://dx.doi.org/10.2139/ssrn.4299599

Jiatao Liu (Contact Author)

Xi’an Jiaotong-Liverpool University ( email )

Business Building (BS), South Campus, 8 Chongwen
, Lake Science and Education Innovation District
Suzhou, 215123
China

Ian William Marsh

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 20 7040 5121 (Phone)
+44 20 7040 8881 (Fax)

HOME PAGE: http://www.cass.city.ac.uk/faculty/i.marsh

Yajun Xiao

Xi'an Jiaotong-Liverpool University (XJTLU) ( email )

111 Renai Road, SIP
JiangSu province 215123
China

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