The Transmission of Information in the Information Age

We use Edward Snowden’s disclosures concerning the National Security Agency’s extraction of private data from internet servers to examine the dissemination and spillover effects of new information within the technology sector. Event study methodologies that focus on varying periods throughout the affair suggest abnormal negative returns during the initial period of uncertainty and a significant recovery after criminal charges were filed against Snowden. This effect is observed for both the internet sites specifically named in the leaked government documents and internet service providers that may be associated with these companies by investors. We examine this spillover by employing a Dynamic Conditional Correlation (DCC) GARCH approach that allows the correlation in volatility to change over time. We find evidence of a steady rise in the correlation between the named sites and internet providers as the events involving Snowden affair emerged. This demonstrates that the effects of news concerning specific companies in the technology sector are not limited to the companies directly involved.