The Textual Contents of Media Reports of Information Security Breaches and Profitable Short-Term Investment Opportunities

Information security-related incidents continue to make headlines. Interestingly, researchers have found mixed results when attempting to associate reports of information security breaches with changes in the affected firm's stock price. This research delves further into this puzzle by investigating the association between the textual contents of information security breach media reports and the stock price, as well as the trading volume reactions of the affected firm(s) around the breach announcement day. Our findings suggest that when the textual contents of breach reports provide more detailed information regarding the incidents, a more consistent belief is formed by the market about the negative impact of the reported security incident on the firm's business value. However, when there is a lack of specific information regarding the reported breach, the market does not seem to reach consensus on the impact of reported security incidents. We further demonstrate that different perceptions exist among general and sophisticated investors regarding the impact of reported information security incidents on a firm's future performance as demonstrated by changes in trading volume. By exploiting the different perceptions among investors, we form a trading strategy to demonstrate that, on average, one can make about 300% annual profit around the breach announcement day.