Does virtual currency development harm financial stocks’ value? Comparing Taiwan and China markets

Abstract

This research incorporated virtual currency development factors into the capital asset pricing model (CAPM) and interpreted the effects of bitcoin and fin-tech on the capital market through a deduction of the portfolio theory and innovation diffusion theory (IDT) on changes to financial stocks' value. This paper examined a total of 67,166 panel data of financial stocks in the two emerging markets of Taiwan and China between July 2016 and April 2019, presenting the following significant findings. (1) Financial stocks in Taiwan's market are more greatly shocked by the bitcoin and interaction effect between bitcoin and fin-tech than those in China's market. (2) Even after changing proxy variable or autocorrelation and heteroskedasticity are considered, the asymmetric shocks on financial stocks in Taiwan's market are still great. (3) The effects of the two variables of bitcoin and interaction with fin-tech on financial stocks are consistently important as the three-factor CAPM model. (4) Transmitted by the changes in currency supply and demand as well as exchange rate volatilities, the spillover effects of virtual currencies and financial innovation indirectly change the currency multiplier of the home country, investors' sensibility to interest rates, and balance of import and export trades and may eventually impact the gross outputs and inflation of individual economies.

The global economy in technological transformation conditions: A review of modern trends

“…The neo-industrial marathon will involve two poles, on the one hand, the U.S. and other developed countries, and on the other, Russia, China, India, and perhaps other developing countries, which will determine the trends of global economic development this century. A new class of assets called cryptocurrencies adds to global uncertainty (Ho, 2020).…”

Influence of virtual currency development and investor attention on financial stocks’ value: evidence from selected Asian equity markets

“…Notwithstanding these advantages, VCs also have some inherent disadvantages which, among others, include the complete change in transaction or investment models once payments are executed and the decline in revenues of major players in the financial sector such as insurers’ service charges and banks’ traditional spread models. Stated differently, the development of VCs may result in significant changes in the financial sector (Huang, 2021; Ho, 2020; Yeoh, 2017).…”

“…Although numerous studies have reported on the significant influence exerted by VCs on stock performance (Shahzad et al , 2020; Stensås et al , 2019; Bouri et al , 2017), these studies did not distinguish whether the sample countries covered actually recognize the legitimacy of VC transactions or not, with the exception of Ho (2020) who investigates the influence of VC development on financial stocks’ value in Taiwan and China. The author finds that VCs, in particular Bitcoins, exert more significant impact on the value of financial stocks in Taiwan, which does not recognize the legitimacy of Bitcoin, as compared to China.…”

“…VCs contribute positively to the development of the digital economy and may be connected to the financial sector in the capital markets through exchange rate fluctuations (Olson et al , 2014), monetary supply and demand (Böhme et al , 2015), speculation (Glaser et al , 2014), portfolio adjustment (Bouri et al , 2020a) and cross-hedging needs (Dyhrberg, 2016). Moreover, VCs are sometimes seen as a substitute to the financial products offered by financial firms (Ho, 2020) or a replacement to traditional banking operations (Aliu et al , 2021). According to Rogers (2002), the more common the VC transactions are, the higher is the degree of financial technology diffusion.…”

“…First, this research contributes to the literature on VC development and stock performance. Although numerous studies have been conducted on the influence of VCs on stock performance (Shahzad et al , 2020; Stensås et al , 2019; Bouri et al , 2017), these studies did not distinguish whether the sample countries covered actually recognize the legitimacy of VC transactions or not, with the exception of Ho (2020). However, the latter research only restricts the comparison between two countries, i.e.…”