The impact of FinTech technology on financial stability of the UAE

Abstract

Financial markets have witnessed significant disruptions driven by ongoing waves of financial innovation, and digitalization brought about by technological advances which are referred to as “FinTech”. Consequently, this paper examines connectedness and risk transmission between FinTech industry, Blockchain, and stability of the financial sector in the UAE. Furthermore, it explores the impact of economic and financial turbulences such as COVID-19 pandemic on the transmission of shocks across FinTech and financial instability using a Time-varying Parameter Vector Autoregressive model. Empirical results indicate that VIX and Global Fintech are the dominant player of the system, and significantly impacting vulnerability of the UAE financial system. However, the post-COVID analysis display shifts in the roles of indices within the connectedness network, such as the OVX transitioning from being a volatility receiver to a transmitter, emphasizing evolving market sentiments in the wake of major crises. Finally, volatility spillovers increased across markets under extreme market conditions indicating that UAE is fully integrated within the global financial markets.

Keywords

• C32
• F30
• G15