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Security Breaches Don’t Affect Stock Price

Interesting research: “Long-term market implications of data breaches, not,” by Russell Lange and Eric W. Burger.

Abstract: This report assesses the impact disclosure of data breaches has on the total returns and volatility of the affected companies’ stock, with a focus on the results relative to the performance of the firms’ peer industries, as represented through selected indices rather than the market as a whole. Financial performance is considered over a range of dates from 3 days post-breach through 6 months post-breach, in order to provide a longer-term perspective on the impact of the breach announcement.

Key findings:

  • While the difference in stock price between the sampled breached companies and their peers was negative (1.13%) in the first 3 days following announcement of a breach, by the 14th day the return difference had rebounded to + 0.05%, and on average remained positive through the period assessed.

  • For the differences in the breached companies’ betas and the beta of their peer sets, the differences in the means of 8 months pre-breach versus post-breach was not meaningful at 90, 180, and 360 day post-breach periods.

  • For the differences in the breached companies’ beta correlations against the peer indices pre- and post-breach, the difference in the means of the rolling 60 day correlation 8 months pre- breach versus post-breach was not meaningful at 90, 180, and 360 day post-breach periods.

  • In regression analysis, use of the number of accessed records, date, data sensitivity, and malicious versus accidental leak as variables failed to yield an R2 greater than 16.15% for response variables of 3, 14, 60, and 90 day return differential, excess beta differential, and rolling beta correlation differential, indicating that the financial impact on breached companies was highly idiosyncratic.

  • Based on returns, the most impacted industries at the 3 day post-breach date were U.S. Financial Services, Transportation, and Global Telecom. At the 90 day post-breach date, the three most impacted industries were U.S. Financial Services, U.S. Healthcare, and Global Telecom.

The market isn’t going to fix this. If we want better security, we need to regulate the market.

Note: The article is behind a paywall. An older version is here. A similar article is here.

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Article from a Former Chinese PLA General on Cyber Sovereignty

Interesting article by Major General Hao Yeli, Chinese People’s Liberation Army (ret.), a senior advisor at the China International Institute for Strategic Society, Vice President of China Institute for Innovation and Development Strategy, and the Chair of the Guanchao Cyber Forum.

Against the background of globalization and the internet era, the emerging cyber sovereignty concept calls for breaking through the limitations of physical space and avoiding misunderstandings based on perceptions of binary opposition. Reinforcing a cyberspace community with a common destiny, it reconciles the tension between exclusivity and transferability, leading to a comprehensive perspective. China insists on its cyber sovereignty, meanwhile, it transfers segments of its cyber sovereignty reasonably. China rightly attaches importance to its national security, meanwhile, it promotes international cooperation and open development.

China has never been opposed to multi-party governance when appropriate, but rejects the denial of government’s proper role and responsibilities with respect to major issues. The multilateral and multiparty models are complementary rather than exclusive. Governments and multi-stakeholders can play different leading roles at the different levels of cyberspace.

In the internet era, the law of the jungle should give way to solidarity and shared responsibilities. Restricted connections should give way to openness and sharing. Intolerance should be replaced by understanding. And unilateral values should yield to respect for differences while recognizing the importance of diversity.

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