Is Microsoft's Stock Down? It Must be Patch Tuesday

Microsoft's stock price regularly takes a hit on the days it issues security patches, according to research released last week.

The company's stock price typically rebounds the next day, after investors realize that the slight decline on Patch Tuesday -- as Microsoft's regularly scheduled update release is known -- was unwarranted, said McAfee Inc.

But the fluctuations are so small that it would be tough for all but the best-funded investor to take advantage of the price movement, said Dave Marcus , McAfee's director of research. "Are the swings huge? Not really. But patches do have a trackable effect," Marcus said.

McAfee researcher Anthony Bettini, who authored a paper the company published yesterday, said that there was a correlation between Microsoft share-price fluctuations and the patch cycle. According to data Bettini tallied from 2006 and 2007, as well as thus far in 2008, there is a downward trend in the price of Microsoft's stock on the average Patch Tuesday.

On average, Microsoft's stock fell 0.11% on patch day during 2006, 0.29% during 2007 and 0.45% on those days thus far this year. Overall, however, Microsoft's shares climbed an average of 0.08% daily in 2006, went up 0.06% each day in 2007, and fell only 0.17% on average so far during 2008.

Even other Tuesdays are kinder to Microsoft's stock, said Bettini's paper: In 2006, Tuesdays without patch releases dropped an average of 0.01%, climbed by 0.15% during 2007 and rose 0.37% so far in 2008.

Prices typically rebound the day after Patch Tuesday, McAfee found. On Exploit Wednesday -- so dubbed because hackers have sometimes released attack code the day after Microsoft fixes bugs -- Microsoft's shares went up an average of 0.27% in 2006, 0.21% during 2007, and a whopping 0.49% this year.

"This is probably because institutional investors or market makers feel Microsoft was oversold the day before because of the bad news and that, in reality, Microsoft's value as an investment was only negligibly affected," Bettini wrote in his paper.

Just because Microsoft's share prices move down on Patch Tuesday then back up the next day doesn't mean there's a get-rich-quick scheme here, Bettini cautioned. "These price fluctuations are relatively small and tightly time-constrained," he said. "Profiting at a retail level from such trades would require risking a large amount of capital." He also noted that the data set was relatively small.

"Bear in mind, this is breaking a little new ground," added Marcus. "But it's clear that [Patch Tuesday] has some effect on [Microsoft share] value."

McAfee's research also proposed that the move to a regularly scheduled patch day -- something Microsoft did five years ago this month -- dampened the negative press the company was constantly getting when it issued fixes unexpectedly.

Bettini came to that conclusion based on an analysis of Microsoft's trading volume during 2002 and 2003, when it was putting out patches willy-nilly, compared with the volume during the years after it systematized updates. "This would imply the effect of changing from unscheduled to prescheduled bulletins has dropped the interest level among traders for events associated with Patch Tuesday," he said in the paper.

McAfee plans to dig deeper into the stock price/patch connection, said Marcus, including research on whether there's a stronger price movement on Patch Tuesdays that contain a large percentage of critical fixes. Another idea: Examine the stock price of other vendors that roll out patches on a set schedule, such as Oracle Corp.

The company has no plans to do a similar analysis of Apple Inc. 's stock, however, Marcus said. "This would be a lot harder to do on a company [that] didn't release patches on a regular schedule. In fact, we may be hard-pressed to repeat this on any other company," he said, noting that other vendors that do patch on specific days do so far less often than Microsoft. For instance, Oracle releases patches quarterly, not monthly.

"But the impact on Apple's shares might be larger, because they don't [patch] on a predictable release schedule," Marcus said, referring to Bettini's conclusion that Microsoft pre-Patch Tuesday was even more susceptible to price fluctuations.

Bettini's paper can be downloaded from McAfee's Web site (download PDF) .

Microsoft released 11 security updates on Tuesday that patched problems in Windows, Office and Internet Explorer.

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