Risk spillovers between FinTech and traditional financial institutions: Evidence from the U.S

Jianping Li, Jingyu Li, Xiaoqian Zhu, Yinhong Yao and Barbara Casu

International Review of Financial Analysis, 2020, vol. 71, issue C

Abstract: In this paper, we propose a novel approach to examine the risk spillovers between FinTech firms and traditional financial institutions, during a time of fast technological advances. Based on the stock returns of U.S. financial and FinTech institutions, we estimate pairwise risk spillovers by using the Granger causality test across quantiles. We consider the whole distribution: the left tail (bearish case), the right tail (bullish case) and the center of the distribution and construct three types of spillover networks (downside-to-downside, upside-to-upside, and center-to-center) and obtain network-based spillover indicators. We find that linkages in the network are stronger in the bearish case when the risk of spillover is higher. FinTech institutions' risk spillover to financial institutions positively correlates with financial institutions' increase in systemic risk. These results have important policy implications, as they underscore the importance of enhancing the supervision and regulation of FinTech companies, to maintain financial stability.

Keywords: Financial technology (FinTech); Financial risk; Risk spillover; Systemic risk; Financial stability (search for similar items in EconPapers)
JEL-codes: C32 D85 G20 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:71:y:2020:i:c:s1057521920301885

DOI: 10.1016/j.irfa.2020.101544

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