Influence of virtual currency development and investor attention on financial stocks’ value: evidence from selected Asian equity markets
| DOI | https://doi.org/10.1108/JFRC-01-2022-0007 |
| Published date | 02 June 2022 |
| Date | 02 June 2022 |
| Pages | 96-125 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial compliance/regulation |
| Author | Ming Torng Ang,Yee Peng Chow |
Influence of virtual currency
development and investor
attention on financial stocks’
value: evidence from selected
Asian equity markets
Ming Torng Ang and Yee Peng Chow
Faculty of Accountancy, Finance and Business,
Tunku Abdul Rahman University College, Kuala Lumpur, Malaysia
Abstract
Purpose –The purpose of this study is to examinethe influence of virtual currency (VC) development on
financial stocks’valuein selected Asian equity markets and the moderating roleof investor attention on this
relationship.
Design/methodology/approach –The pooled ordinary leastsquares regression is used on a sample of
138 listed financialfirms from four emerging Asian countriesfor the period 2016–2020.
Findings –This study finds that changes in VC values have greater spillover effects on the values of
financial stocks in countrieswhich do not recognize the legitimacy of VCs than in countries which do, due to
the lack of breadth anddepth of the former markets. Moreover, this paper also reportsevidence of the greater
moderatingrole of investor attention on this relationshipin countries which do not recognize the legitimacy of
VCs than in countrieswhich do.
Originality/value –Although numerous studies have been conducted on the influence of VCs on stock
performance, majority of these studies did not distinguish whether the sample countries being studied
actually recognizethe legitimacy of VC transactions or not. Moreover,extant literature has not considered the
moderating role of investorattention on this relationship. It is the aim of this studyto address these research
voids by using a refined three-factortheory model of capital asset pricing model incorporatingVCs to better
representstock performance in the digital economy era.
Keywords Bitcoin, Capital asset pricing model, Stock performance, Investor attention,
Asian equity markets, Virtual currency development
Paper type Research paper
1. Introduction
Virtual currencies (VCs), also known as cryptocurrencies or digital currencies, such as
Bitcoin and Ethereum are an emerging disruptive technology (Brophy, 2020). VCs have no
fundamental value, are not governed by any countryor regulator and yet are feared by the
banks and other financial institutions(Aliu et al., 2021;Polat and Günay, 2021;Geuder et al.,
2019). The advantages of using VCs are they involvechanges in business models and adopt
the distributed storage concept to prevent the tampering of financial records. Additionally,
VCs use financial innovations to secure new market niches and offer the convenience of
third-party payment transactions and secret transfers through private keys.
Notwithstanding these advantages, VCs also have some inherent disadvantages which,
among others, include the complete change in transaction or investment models once
payments are executed and the decline in revenues of major players in the financial sector
JFRC
31,1
96
Received17 January 2022
Revised22 April 2022
Accepted13 May 2022
Journalof Financial Regulation
andCompliance
Vol.31 No. 1, 2023
pp. 96-125
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-01-2022-0007
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1358-1988.htm
such as insurers’service charges and banks’traditional spread models. Stated differently,
the development of VCs may result in significant changes in the financial sector (Huang,
2021;Ho, 2020;Yeoh, 2017).
The development of VCs has advanced,and people are now investing and incorporating
VCs into their investment portfolios to diversify or hedge risk (Bouri et al., 2020b;Glaser
et al.,2014).Moreover, some fund management companies treat VCs as negotiablesecurities
and include them as part of their portfolios to spread risks and enhance portfolio
performance (Böhme et al.,2015;Wu and Pandey, 2014). This investment strategy has been
proven to result in a much more efficient portfolio (Chen et al.,2015). Besides, VCs are
sometimes regarded as common stocks because they possess certain risk-return
characteristics, liquidity and legal and economic profiles, which draw them closer to the
common stock family (Alfieri et al., 2019;Bauret al.,2018;Glaser et al.,2014). Furthermore,
volatility of prices of VCs also havespillover effects on commodities and corporate financial
variables in the financial sector (Guesmi et al.,2019) and may create detrimental effects on
these markets (Polat and Günay, 2021). Hence,this paper contends that if VCs are strongly
correlated with otherassets such as common stocks due to the former being either a hedging
instrument or an alternative investmenttool, any developments or shocks experienced in the
VC market may have spillover effects on the stock markets. This may lead to serious
consequences to the country’s stock market development, in particular, and the overall
economic development, in general. Therefore, it is imperative to understand how shocks
created by fluctuationsof VC prices may affect the performance of a country’s stock market.
Although numerous studieshave reported on the significant influence exerted by VCs on
stock performance (Shahzad et al.,2020;Stensås et al.,2019;Bouri et al.,2017), these studies
did not distinguish whether the sample countries covered actuallyrecognize the legitimacy
of VC transactions or not, with the exception of Ho (2020) who investigates the influence of
VC development on financial stocks’valuein Taiwan and China. The author finds that VCs,
in particular Bitcoins, exert more significant impact on the value of financial stocks in
Taiwan, which does not recognize the legitimacy of Bitcoin, as compared to China. The
latter country has adequate market depth and breadth to stabilize any external shocks
because it registered the highest transaction volumes in Bitcoin trading in the world.
Echoing Ho (2020), thispaper asserts that in reality, not all jurisdictionshave recognized the
legitimacy of VCs as part of their payment method, although some regulators may allow
these currencies to be traded or held in these countries. Hence, this study contends that due
to different degrees of policy controls and VC development between countries which
recognize the legitimacyof VCs and countries which do not, fluctuations in the prices of VCs
may exert varying degreeof influence on the stock prices of these countries.
Furthermore, this research also argues that developments in the VC market may not
have uniform effects on all sectors of the economy and would most likely exert the most
pronounced impact on the financial sector. VCs contribute positively to the development of
the digital economy and may be connected to the financial sector in the capital markets
through exchange rate fluctuations (Olson et al.,2014), monetary supply and demand
(Böhme et al., 2015), speculation(Glaser et al., 2014), portfolio adjustment (Bouri et al., 2020a)
and cross-hedging needs (Dyhrberg, 2016). Moreover, VCs are sometimes seen as a
substitute to the financial products offeredby financial firms (Ho, 2020) or a replacement to
traditional banking operations (Aliu et al., 2021). According to Rogers (2002), the more
common the VC transactions are, the higher is the degree of financial technology diffusion.
Hence, developments in the VC market are likely to generate greater effects on financial
stocks as compared to otherstocks.
Asian equity
markets
97
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