FinTech Assets as Hedges for ESG Market Risk: Regime-Dependent Evidence from Developed and Emerging Economies
Faycal Chiad, Abdelhalim GherbiThis study investigates whether FinTech thematic assets achieve dynamic variance reduction for regional ESG market risk under clean-energy equity stress regimes, using daily data from March 2019 to August 2024 across five S&P ESG LargeMidCap markets spanning developed and emerging economies (North America, Europe, Asia Pacific Developed, Latin America Emerging, and Asia Pacific Emerging). Employing a DCC-GARCH framework with GJR-GARCH univariate specifications across four S&P Kensho FinTech channels—Democratized Banking, Alternative Finance, Future Payments, and Distributed Ledger—we estimate time-varying correlations and hedging effectiveness, and assess safe-haven properties via the Baur–Lucey framework. The most robust finding is that North America ESG shows the strongest dynamic variance reduction (59–76%), improving further during high clean-energy equity stress regimes (p < 0.01, bootstrap permutation test); Asia Pacific Developed ESG shows the weakest (7–9%) despite its developed-market status, while Latin America Emerging ESG’s comparatively high variance reduction (28–40%) is tempered by residual ARCH effects that point to incompletely modeled volatility rather than structural hedging capacity. All FinTech channels remain positive diversifiers rather than safe havens across every market and regime. Hedging capacity thus tracks market-specific volatility and correlation dynamics rather than a simple developed–emerging divide. The analysis is bounded by a single five-year sample window and two transition-risk proxies, warranting continued monitoring as FinTech and ESG regulatory frameworks evolve.