Determinants of Household Crypto Asset Market Participation: Evidence from the United States (with Vikas Kakkar)
This paper investigates the determinants of U.S. household investment in cryptocurrency assets, drawing on data from the 2021 National Financial Capability Study. The findings indicate that households exhibiting high self-assessed financial knowledge, advanced digital literacy, low risk aversion, and strong fraud aversion have a higher propensity to invest in cryptocurrencies. Interestingly, a household's objective financial knowledge appears to have no significant effect on their investment decisions in this domain. The study also reveals evidence of behavioral biases, particularly overconfidence and myopia (short-termism), in the U.S. cryptocurrency market. Households guided by financial advisors tend to avoid cryptocurrency investments, while those influenced by social media are more inclined to invest in them. These findings offer important insights for the development of informed policies in the rapidly evolving cryptocurrency landscape.
This paper has received “The Best Summer Paper Award to Junior PhD Students” from the Department of Economics and Finance, City University of Hong Kong.
On FinTech Credit and MSME Financing: Evidence from Developing and OECD Countries
Access to credit by micro, small, and medium enterprises (MSMEs) from conventional financial institutions such as banks has historically been challenging. This has led to an increased use of alternative financing sources by MSMEs to bridge their long-standing funding gap. In this study, I examine the impact of fintech credit (as an alternative financing source) on MSME financing. Using a novel data set (of MSME financing gap) from the International Finance Cooperation (IFC, 2019) and the fintech credit index from the World Bank, I empirically quantify the extent to which Fintech credit closes the MSME financing gap in developing countries. I find that fintech credit reduces the MSMEs’ financing gap in developing countries by about 20 percent. Also, I present evidence that technology and innovations mediate the effect of fintech credit on the MSME financing gap in developing countries. More innovative and technology-leveraging firms are better positioned to use fintech credit to reduce their financing gaps. Furthermore, I use data on bank loans to SMEs in OECD countries to study the substitutability/complementarity of fintech and bank credit. I find that SMEs' demand for bank loans is reduced by 0.029 percent for a percentage increase in fintech credit. To further highlight this finding, I disentangle the bank loans to SMEs into short-term and long-term loans. I find that the substitution occurs only in the short-term loans, not the long-term ones. This suggests that in OECD countries, fintech credit enables SMEs to diversify their demand for credit, thus reducing the exposure to banks' credit shocks. The results are robust to an instrumental variable analysis, allowing for possible endogeneity of fintech credit. These findings are essential in helping shape policies that would enhance MSME financing and the fintech credit market.