cyber risk disclosure short
What it checks
When a company adds substantially more cybersecurity, ransomware, or data-breach language in its annual risk-factors section, it often reflects a recent incident or rising exposure. Short the stock for 6 months as the operating cost and revenue impact gets priced in.
Mechanism
Firms with rising cyber-risk disclosure in 10-K Item 1A (Risk Factors) underperform peers by 4-6% over the subsequent year. Combines (i) realized incidents that triggered the disclosure update and (ii) higher expected operating costs from security spend.
Signal rule
10-K Item 1A cyber-keyword density YoY growth >=+50% or +100% fires SHORT starting filing_date + 45d, hold 180d.
Data dependencies
daily_pricesAdjusted-close OHLCV for every US-listed ticker; primary price feed.
sec_10k_sectionsWorker data table, see services/worker schema.
Expected edge
- Paper alpha
- -4 to -6% over 180d
- Paper window
- filing+45d to filing+225d
Florackis et al 2023; -4 to -6% over 180d on top-decile cyber-risk-language growth.
Related families
risk factor 10k item1a deltaText & FilingsY/Y change in Item 1A (Risk Factors) text predicts negative drift; distinct from filing_text_delta.
filing text deltaText & FilingsYear-over-year change in uncertainty/risk language in 10-K Item 1 ('Business' section). Spike in 'may', 'could', 'uncertain', 'challenging', 'risk' tokens per 10K words โ management is privately more cautious โ forward earnings miss / underperformance. Stable or decreasing language โ quietly confident outlook โ outperform.
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