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Volatility Spillover Dynamics and Determinants between FinTech and Traditional Financial Industry: Evidence from China

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  • Ziyao Wang

    (Jiangsu Normal University Kewen College, Xuzhou 221116, China)

  • Yufei Xia

    (Business School, Jiangsu Normal University, Xuzhou 221116, China)

  • Yating Fu

    (School of Economics and Management, China University of Mining and Technology, Xuzhou 221116, China)

  • Ying Liu

    (Sino-Russian Institute, Jiangsu Normal University, Xuzhou 221116, China)

Abstract

We explore the dynamics and determinants of volatility spillover between financial technology (FinTech) and the traditional financial industry (TFI). The total, directional, and net spillover indices are measured, and we further decompose volatility spillovers in a time–frequency framework. Economic fundamentals, risk contagion, and market attention are examined as potential determinants of volatility spillovers. We reveal that the total spillover index is time-varying and exhibits an inverse U-shape between 2017 and 2021. FinTech is a net volatility receiver in most cases, and exported volatility to the TFI during the COVID-19 pandemic. The long-term components are the main driving force of volatility spillovers based on the frequency domain decomposition. Meanwhile, the economic fundamental determinants are the main contributing factors of volatility spillovers, explaining over 60% of total spillover between FinTech and the TFI. The findings remain robust under different settings of forecasting horizons, lag lengths, and proxy of the risk contagion determinant.

Suggested Citation

  • Ziyao Wang & Yufei Xia & Yating Fu & Ying Liu, 2023. "Volatility Spillover Dynamics and Determinants between FinTech and Traditional Financial Industry: Evidence from China," Mathematics, MDPI, vol. 11(19), pages 1-23, September.
    • Handle: RePEc:gam:jmathe:v:11:y:2023:i:19:p:4058-:d:1246950
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    2. Sun, Jiaojiao & Zhang, Chen & Zhu, Jing & Zhao, Jingsong, 2024. "Risk spillover mechanism among commercial banks and FinTech institutions throughout public health emergencies," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

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