We introduce a novel news narrative measure to explore cybercrime's role as a systematic risk factor in the cross-section of stock returns. We show that stocks exhibiting higher sensitivity to cybercrime risk—reflected in their cybercrime beta—command lower subsequent risk-adjusted returns, suggesting a negative risk premium for assets that offer hedging properties during cybercrime surges.
Our long-short portfolio strategy demonstrates the hedging power of such stocks against 112 significant cyber incidents, affirming their value in mitigating cybercrime exposure. Delving deeper, we identify four determinants of firms' cybercrime betas, highlighting the protective influence of intensive human capital investment in corporate governance, minimal industry-wide cybercrime entanglements, limited digital activities, and a less data-centric focus business implied by IT investment ratios.
These findings contribute to our understanding of cybercrime's impact on asset pricing and underscore the need for expanded cyber-risk insurance solutions, especially in an era of escalating digital vulnerabilities and rapid technological evolution.
Ian Marsh is Professor of Finance at Bayes Business School, City, University of London. His research centers on the foreign exchange market, but his interests are broad, and he has also written on economic conditions in the inter-war period, the impact of gender in the market for financial advice, and economic productivity. He has published in leading journals including the Journal of Finance, Journal of Financial Economics, Journal of Financial and Quantitative Analysis, Journal of Monetary Economics and the Review of Economics and Statistics. Ian has been at Bayes since 1998, during which time he has directed the suite of undergraduate finance degrees, the flagship MSc in Finance, and the Finance PhD program. Until recently, he was the Head of the Faculty of Finance.
Besides his time in academia, Ian has worked in the City of London as an international banker and financial market economist for the IMF and at the Bank of England. He is currently working on a third book, tentatively entitled Asset Pricing in Stata.
The seminar will be held in English.
Major information: Andi Duqi (andi.duqi@unibo.it)