Time–frequency dependence and connectedness between financial technology and green assets

Abstract

This paper provides new evidence on the dynamic dependence and connectedness between investments in Financial Technology (FinTech) and green assets across different market conditions and investment horizons. The paper uses daily data and relies on wavelets coherency and quantile-based connectedness methods. First, our results indicate that the co-movement between FinTech and green bonds and clean energy stocks is mostly positive and strongest in the long-term but weak in the short-term, indicating a high probability of large joint losses for long-term investors and hedging opportunities of FinTech stocks for short-term investors in green financial assets. Second, the level of connectedness is stronger at both tails of the return distribution and similar in the short- and long-term while in the medium-term, normal market period total connectedness became stronger than the bearish market period connectedness during the COVID-19 pandemic. Lastly, results also indicate that across all market conditions and time scales, FinTech stocks dominate most of the green financial assets as demonstrated by the net pairwise directional risk spillover. This suggests that FinTech stocks may not offer good hedging opportunities for green financial indexes. The paper provides some crucial implications based on these findings.