Tail risk and systemic risk of finance and technology (FinTech) firms

Abstract

Technology firms are increasingly moving to finance. They are able to make use of a large stock of user data and offer a range of services that otherwise were not possible. This move may pose fresh challenges to financial stability. This paper empirically evaluates the tail risk and systemic risk of technology firms. Our data sample consists of technology firms, and for comparison we also evaluate the tail risk and systemic risk of finance firms. We use daily equity returns data from 2 April 1992 to 31 December 2019 and we adopt the univariate extreme value theory (EVT) to determine equity tail risk. Our selection criteria is the market capitalisation and we choose the top twenty technology and the top twenty finance firms to evaluate tail risk and systemic risk. We found that the tail risk of technology firms is higher than the financial firms, whereas they are less likely to be in distress conditional upon a shock from the system. However, this finding for technology firms reverses when we use recent data via our six-year rolling estimates. We conclude that, similar to finance firms, there should be tighter regulations for technology firms since technology firms are riskier than the finance firms. Our paper has significant implications for both national and global financial regulators.

Publication DOI: https://doi.org/10.1016/j.techfore.2021.121191
Divisions: College of Business and Social Sciences > Aston Business School
College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Additional Information: © 2021, Elsevier. Licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International http://creativecommons.org/licenses/by-nc-nd/4.0/
Publication ISSN: 1873-5509
Full Text Link:
Related URLs: https://www.sci ... 6247?via%3Dihub (Publisher URL)
PURE Output Type: Article
Published Date: 2022-01
Published Online Date: 2021-09-21
Accepted Date: 2021-09-01
Authors: Chaudhry, Sajid M. (ORCID Profile 0000-0001-8769-8920)
Ahmed, Rizwan
Huynh, Toan Luu Duc
Benjasak, Chonlakan

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Access Restriction: Restricted to Repository staff only until 21 March 2023.

License: Creative Commons Attribution Non-commercial No Derivatives


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