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.