Do financial technology and clean bonds reshape risk spillovers in sectoral equity markets? A quantile-based assessment using the US case

Financial resource diversification is a panacea to inhibit portfolio risks and ensure societal upliftment. Financial technologies (Fintech) and eco-friendly bonds can reshape this diversification process, enabling investors to invest in multiple sectors effectively. However, the empirical narrative on how Fintech and eco-friendly bonds can elevate the potential of sectoral equity markets to attract investors is limited. To fill this gap, we document the causal connectedness and distributional predictability between Fintech, eco-friendly bonds, and sectoral equity markets in the USA. Several statistical techniques, such as Cross-quantilogram Correlation (CQC), causality-in-quantile (CQ), and quantile-on-quantile heat maps, are used. Our findings unfold as follows: Fintech and eco-friendly bonds hold strong predictive power in explaining the return variations in the sectoral equity markets. The distributional predictability findings indicate that when the market is in a boom period, negative directional predictability is noted between Fintech and sectoral equity markets, and green bond and sectoral equity markets, indicating that a small shock in the prices of Fintech and green bonds may unleash a significant change in the return of the stocks in the sectoral equity markets. This observation makes Fintech and eco-friendly bonds the perfect hedge with optimum financial risk minimization capacities. Moreover, hedging support from Fintech and eco-friendly bonds is prominent in extreme quantiles. Fintech provides hedging support for all sectoral equity markets, whereas eco-friendly bonds do not provide support for stock markets related to real estate, consumer staples, and utilities. Overall, Fintech and eco-friendly bonds provide multi-way shock absorption capabilities in the studied markets, with several policy implications.