The paper assesses how stock market volatility reacts to data breach disclosure. The paper applies Volatility Event Analysis and Kolmogorov-Smirnov Test to analyse how equity risk (stock volatility) of 96 firms listed on the S&P 500 index reacted to the announcement of a data breach using records from Breach Level Index (BLI ) over the period between January 2013 and December 2018. Two levels of empirical analysis were performed: cross-section level and industry level. We employ statistical tests that adjust for the effects of cross-section firm-specific mean and volatility. The analysis delivers the following results: Firstly, cross-sectional analysis shows that there is evidence of significant abnormal across the firms and significant difference between before and after cyberattacks announcements. Secondly, the industry level analysis reveals that the firms in the financial industry exhibit more abnormal volatility and returns than firms in other sectors. Additionally, there is significant evidence of the difference in pre and post cyberattacks or data breach announcements, however, this effect tends to be more pronounced after the announcement of a data breach. Implying that data breach announcements can significantly influence equity volatility. In conclusion, the paper posits, equity investors and other stakeholders should reconsider their approach to cybersecurity events when updating the risk measures of their stocks and portfolios.
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