Stock market performance differences between fintech and traditional financial firms

Abstract

Nowadays, Fintech firms are making the most of new technologies to expand and improve financial services, displacing traditional financial companies in some cases. These Fintech firms are playing an increasingly relevant role, not only in the economic and financial sphere, but also in the stock markets, as they have become an attractive investment alternative. However, our knowledge of these companies’ stock performance is still limited. In this context, the aim of this study is to analyse the return and risk associated to investing in the FinTech companies comprising the Nasdaq Financial Technology index as well as the return and risk associated to investing in traditional financial companies comprising the Standard & Poor’s 500 Financials index. The study is completed by analysing the results of a zero-cost investment strategy based on buying shares in FinTech companies and selling shares in traditional financial companies. This allows us to analyse whether there are significant differences between the two types of investment. Our overall results show that the risk-adjusted return, as well as the systematic risk, are conditioned by the state of the economy in both types of investment and that the significant differences in investment style boil down to the fact that traditional companies are value firms. Meanwhile, fintech firms have greater capacity for growth in the stock market. These findings provide relevant information for current research on Fintech firms in comparison to traditional financial firms. Moreover, these findings can be used by investors for their trading strategies