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The Cyber Risk Premium

Author

Listed:
  • 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)

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.

Suggested Citation

  • Hao Jiang & Naveen Khanna & Qian Yang & Jiayu Zhou, 2024. "The Cyber Risk Premium," Management Science, INFORMS, vol. 70(12), pages 8791-8817, December.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:12:p:8791-8817
    DOI: 10.1287/mnsc.2022.02056
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