IDEAS home Printed from https://ideas.repec.org/a/plo/pone00/0265606.html
   My bibliography  Save this article

The impact of digital finance on household participation in risky financial markets: Evidence-based study from China

Author

Listed:
  • Yun Ye
  • Yongjian Pu
  • Ailun Xiong

Abstract

Chinese households have overinvested in risk-free financial assets, resulting in a single structure of financial assets. However, this proportion declined as digital finance developed. By combing the data from the China Household Finance Survey Data and the Peking University Digital Financial Inclusion Index of China, we find that digital finance significantly promotes household participation in risky financial markets. Further mechanistic analysis unveils that digital finance mainly affects households’ participation in risky financial markets by reducing the lack of investment channels, promoting households’ access to financial information and increasing the possibility of household risk appetite. In addition, the heterogeneity analysis suggests that digital finance effectively reduces the deterrent effect of wealth and cognitive thresholds on all households, reflecting the inclusive nature of financial development. Our findings provide an empirical basis for the mainstream positioning of digital finance in the development of inclusive finance, and display its positive impact on social welfare.

Suggested Citation

  • Yun Ye & Yongjian Pu & Ailun Xiong, 2022. "The impact of digital finance on household participation in risky financial markets: Evidence-based study from China," PLOS ONE, Public Library of Science, vol. 17(4), pages 1-16, April.
    • Handle: RePEc:plo:pone00:0265606
    DOI: 10.1371/journal.pone.0265606
    as

    Download full text from publisher

    File URL: https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0265606
    Download Restriction: no
    File URL: https://journals.plos.org/plosone/article/file?id=10.1371/journal.pone.0265606&type=printable
    Download Restriction: no
    File URL: https://libkey.io/10.1371/journal.pone.0265606?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2010. "Are Risk Aversion and Impatience Related to Cognitive Ability?," American Economic Review, American Economic Association, vol. 100(3), pages 1238-1260, June.
    2. Andreas Fagereng & Charles Gottlieb & Luigi Guiso, 2017. "Asset Market Participation and Portfolio Choice over the Life-Cycle," Journal of Finance, American Finance Association, vol. 72(2), pages 705-750, April.
    3. Cardak, Buly A. & Wilkins, Roger, 2009. "The determinants of household risky asset holdings: Australian evidence on background risk and other factors," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 850-860, May.
    4. Dekui Jia & Ruihai Li & Shibo Bian & Christopher Gan, 2021. "Financial Planning Ability, Risk Perception and Household Portfolio Choice," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(8), pages 2153-2175, June.
    5. Shum, Pauline & Faig, Miquel, 2006. "What explains household stock holdings?," Journal of Banking & Finance, Elsevier, vol. 30(9), pages 2579-2597, September.
    6. Mankiw, N. Gregory & Zeldes, Stephen P., 1991. "The consumption of stockholders and nonstockholders," Journal of Financial Economics, Elsevier, vol. 29(1), pages 97-112, March.
    7. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
    8. Darius Palia & Yaxuan Qi & Yangru Wu, 2014. "Heterogeneous Background Risks and Portfolio Choice: Evidence from Micro‐level Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1687-1720, December.
    9. Peter Gomber & Jascha-Alexander Koch & Michael Siering, 2017. "Digital Finance and FinTech: current research and future research directions," Journal of Business Economics, Springer, vol. 87(5), pages 537-580, July.
    10. Scott, Susan V. & Van Reenen, John & Zachariadis, Markos, 2017. "The long-term effect of digital innovation on bank performance: An empirical study of SWIFT adoption in financial services," Research Policy, Elsevier, vol. 46(5), pages 984-1004.
    11. Buly A. Cardak & Roger Wilkins, 2008. "The Determinants of Household Risky Asset Holdings: Background Risk and Other Factors," Melbourne Institute Working Paper Series wp2008n02, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    12. repec:zbw:bofitp:2021_014 is not listed on IDEAS
    13. Sule Alan, 2006. "Entry Costs and Stock Market Participation over the Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 588-611, October.
    14. Xun Zhang & Ying Tan & Zonghui Hu & Chen Wang & Guanghua Wan, 2020. "The Trickle‐down Effect of Fintech Development: From the Perspective of Urbanization," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(1), pages 23-40, January.
    15. David Hirshleifer & Siew Hong Teoh, 2003. "Herd Behaviour and Cascading in Capital Markets: a Review and Synthesis," European Financial Management, European Financial Management Association, vol. 9(1), pages 25-66, March.
    16. Paul Gerrans & Robert Faff & Neil Hartnett & Henk Berkman, 2015. "Individual financial risk tolerance and the global financial crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 55(1), pages 165-185, March.
    17. Amrita Chatterjee, 2020. "Financial inclusion, information and communication technology diffusion, and economic growth: a panel data analysis," Information Technology for Development, Taylor & Francis Journals, vol. 26(3), pages 607-635, July.
    18. Peress, Joel, 2005. "Information vs. Entry Costs: What Explains U.S. Stock Market Evolution?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 40(3), pages 563-594, September.
    19. Prashant Bharadwaj & Tavneet Suri, 2020. "Improving Financial Inclusion through Digital Savings and Credit," AEA Papers and Proceedings, American Economic Association, vol. 110, pages 584-588, May.
    20. Bogan, Vicki, 2008. "Stock Market Participation and the Internet," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(1), pages 191-211, March.
    21. Rui Li & Yanhong Qian, 2021. "How does entrepreneurship influence the efficiency of household portfolios?," The European Journal of Finance, Taylor & Francis Journals, vol. 27(13), pages 1282-1302, September.
    22. Monica Rosavina & Raden Aswin Rahadi & Mandra Lazuardi Kitri & Shimaditya Nuraeni & Lidia Mayangsari, 2019. "P2P lending adoption by SMEs in Indonesia," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 11(2), pages 260-279, June.
    23. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
    24. Li, Jie & Wu, Yu & Xiao, Jing Jian, 2020. "The impact of digital finance on household consumption: Evidence from China," Economic Modelling, Elsevier, vol. 86(C), pages 317-326.
    25. Ryan D. Edwards, 2010. "Optimal portfolio choice when utility depends on health," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(2), pages 205-225, June.
    26. George M. Korniotis & Alok Kumar, 2011. "Do Behavioral Biases Adversely Affect the Macro-economy?," Review of Financial Studies, Society for Financial Studies, vol. 24(5), pages 1513-1559.
    27. He, Zekai & Shi, Xiuzhen & Lu, Xiaomeng & Li, Feng, 2019. "Home equity and household portfolio choice: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 149-164.
    28. Baptista, Alexandre M., 2008. "Optimal delegated portfolio management with background risk," Journal of Banking & Finance, Elsevier, vol. 32(6), pages 977-985, June.
    29. Pierre Bachas & Paul Gertler & Sean Higgins & Enrique Seira, 2018. "Digital Financial Services Go a Long Way: Transaction Costs and Financial Inclusion," AEA Papers and Proceedings, American Economic Association, vol. 108, pages 444-448, May.
    30. Daniela Gabor & Sally Brooks, 2017. "The digital revolution in financial inclusion: international development in the fintech era," New Political Economy, Taylor & Francis Journals, vol. 22(4), pages 423-436, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhou, Xiaoshi & Vatsa, Puneet & Ma, Wanglin, 2023. "Impact of internet use on value and diversity of risky financial asset portfolios," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 188-193.
    2. Hua Guo & Fan Gu & Yanling Peng & Xin Deng & Lili Guo, 2022. "Does Digital Inclusive Finance Effectively Promote Agricultural Green Development?—A Case Study of China," IJERPH, MDPI, vol. 19(12), pages 1-17, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Xiaomeng Lu & Jiaojiao Guo & Hailing Zhou, 2021. "Digital financial inclusion development, investment diversification, and household extreme portfolio risk," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(5), pages 6225-6261, December.
    2. Wen, Chufu & Zhao, Xinyu & Xu, Longhao & Yin, Hua, 2023. "Military experience and household stock market participation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
    3. Korniotis, George & Bonaparte, Yosef & Kumar, Alok, 2020. "Income Risk and Stock Market Entry/Exit Decisions," CEPR Discussion Papers 15370, C.E.P.R. Discussion Papers.
    4. Briggs, Joseph & Cesarini, David & Lindqvist, Erik & Östling, Robert, 2021. "Windfall gains and stock market participation," Journal of Financial Economics, Elsevier, vol. 139(1), pages 57-83.
    5. Nicholas Apergis & Tasawar Hayat & Tareq Saeed, 2019. "The Role of Happiness in Financial Decisions: Evidence from Financial Portfolio Choice and Five European Countries," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(3), pages 343-360, September.
    6. Robert Ostling & Erik Lindqvist & David Cesarini & Joseph Briggs, 2015. "Wealth and Stock Market Participation: Estimating the Causal Effect From Swedish Lotteries," 2015 Meeting Papers 806, Society for Economic Dynamics.
    7. Valentina Michelangeli & Eliana Viviano, 2021. "Can internet banking affect households' participation in financial markets and financial awareness?," Temi di discussione (Economic working papers) 1329, Bank of Italy, Economic Research and International Relations Area.
    8. Sandra E Black & Paul J Devereux & Petter Lundborg & Kaveh Majlesi, 2018. "Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets," Review of Finance, European Finance Association, vol. 22(3), pages 951-975.
    9. Robert Östling & Erik Lindqvist & David Cesarini & Joseph Briggs, 2016. "Wealth, Portfolio Allocations, and Risk Preference," 2016 Meeting Papers 1089, Society for Economic Dynamics.
    10. Lu, Xiaomeng & Guo, Jiaojiao & Gan, Li, 2020. "International comparison of household asset allocation: Micro-evidence from cross-country comparisons," Emerging Markets Review, Elsevier, vol. 43(C).
    11. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    12. Magnus Dahlquist & Ofer Setty & Roine Vestman, 2018. "On the Asset Allocation of a Default Pension Fund," Journal of Finance, American Finance Association, vol. 73(4), pages 1893-1936, August.
    13. Cardak, Buly A. & Wilkins, Roger, 2009. "The determinants of household risky asset holdings: Australian evidence on background risk and other factors," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 850-860, May.
    14. Christelis, Dimitris & Georgarakos, Dimitris & Haliassos, Michael, 2011. "Stockholding: Participation, location, and spillovers," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1918-1930, August.
    15. Zou, Jing & Deng, Xiaojun, 2019. "Financial literacy, housing value and household financial market participation: Evidence from urban China," China Economic Review, Elsevier, vol. 55(C), pages 52-66.
    16. Julio Gálvez & Gonzalo Paz-Pardo, 2022. "Richer earnings dynamics, consumption and portfolio choice over the life cycle," Working Papers 2241, Banco de España.
    17. Guiso, Luigi & Sodini, Paolo, 2013. "Household Finance: An Emerging Field," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1397-1532, Elsevier.
    18. Johannes König & Maximilian Longmuir, 2021. "Wage Risk and Portfolio Choice: The Role of Correlated Returns," Discussion Papers of DIW Berlin 1974, DIW Berlin, German Institute for Economic Research.
    19. Jie Zhou, 2015. "Household Stockholding Behavior During the Great Financial Crisis," Staff Working Papers 15-15, Bank of Canada.
    20. Abdul Rahim, Husniyah & Md. Jusoh, Zuroni & Abdul Samad, M. Fazilah, 2012. "Predictors of Investment in Risky Assets among Malaysian Families," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 46(1), pages 27-37.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0265606. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.