Abstract
As a new species in the financial ecosystem, internet finance has significantly impacted traditional finance and has improved the diversity and ended the long-term stability of the financial ecosystem. From the perspective of the interaction between the ecological subjects of the Internet and traditional finance, this study examines the influence of internet finance on the sustainability of the financial ecosystem in China. We tested the dynamic correlation and risk transmission at the volatility level between the ecological subjects of internet finance and the banking, securities, and insurance industries by establishing a dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (GARCH) model of Baba, Engle, Kraft, and Kroner (DCC-GARCH-BEKK). The result indicates a positive dynamic correlation between internet finance and traditional finance almost all of the time. The introduction of internet finance has changed the risk transmission effect among the ecological subjects of traditional finance. Based on empirical findings, this study provides suggestions to promote the sustainable development of internet finance and the whole financial ecosystem. Our research not only has strong practical significance but also contributes significantly to the literature on internet finance and sustainable development.
Highlights
Financial ecosystem refers to a dynamic equilibrium system in which the financial industry and its external environment for survival and development interact with each other through their own adjustment mechanisms [1]
This paper creatively studies the dynamic correlation between internet finance and each traditional financial variable, and studies the influence of risk transmission effect of internet finance on the traditional financial system by DCC-generalized autoregressive conditional heteroskedasticity (GARCH)-BEKK model
This study analyzes the ecological relationship between the financial ecological subjects of internet finance and the banking, securities, and insurance industries, and the influence of internet finance on the sustainable development of financial ecosystem based on the DCC-GARCH-BEKK model, and draws the following conclusions
Summary
Financial ecosystem refers to a dynamic equilibrium system in which the financial industry and its external environment for survival and development interact with each other through their own adjustment mechanisms [1]. The birth of internet finance has not changed the essence of finance, it has significantly impacted and disrupted the traditional financial ecosystem while improving the ecological diversity of the financial market [2]. Internet finance has significantly changed the three core elements of the financial ecosystem—the species of a financial ecosystem, the financial ecological environment, and the financial ecological relationships—thereby leading to the formation of a new financial ecosystem. The various Internet finance platforms, such as peer-to-peer (P2P) lending, crowd-funding, and third-party payment, started appearing in the financial ecosystem in recent years, influencing the ecological subjects of traditional finance as well as the financial ecological environment [3,4]. Characterized by advanced technology, fast service, and low costs, internet finance promotes the reformation of traditional financial subjects. Risks in the Internet finance industry will proliferate to the traditional financial industries through related channels
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