Job Talk: Digital Insiders and Informed Trading Before Earnings Announcements

Room 3208
Thu, 29/12/202212:30-14:00
Jonathan Jona, Freeman School of Business, Tulane University


In addition to growing risk from hackers stealing customer information, an increasingly common cybersecurity risk for firms stems from digital insiders – hackers who target corporations to obtain non-public corporate information for illegal trading. We propose and validate two firm-specific measures of cybersecurity risk mitigation based on textual analysis of 10-Ks to proxy for the organization’s ability to reduce the probability of digital insider trading. We find that a larger share of new earnings information is incorporated into prices prior to earnings announcements for firms with low cybersecurity risk mitigation scores and that pre-announcement trading by short sellers is more predictive of earnings surprises for these firms. Also suggestive of informed trading, for firms with lower cybersecurity risk mitigation scores we find an increase in stock and option trading volume and higher intraday price volatility during several weeks prior to earnings announcements.