Wealth Management Products Research Articles

Will China’s fintech momentum continue?

ABSTRACT Fintech has become ubiquitous in daily life for many Chinese citizens. Individuals have become increasingly used to making digital payments, using online banking services, and purchasing wealth management and insurance products online. We discuss how China gained fintech momentum and how new technologies allowed fintech firms to move forward. We then examine whether China’s fintech momentum will continue.

Research on Marketing Strategy Optimization Based on Financial Big Data

The rapid rise of financial big data has brought subversive changes to the traditional financial field. Both traditional financial companies and emerging internet companies are eager to join the era of financial big data. The emerging consumer finance companies of industrial departments and mutual financial departments have used the Internet thinking, but their marketing strategies have caused problems such as large initial investment and poor results in a short time. If commercial banks want to keep up with the times, they must conduct in-depth research on the market, constantly innovate and enrich their own wealth management products, and design matching wealth management products according to the individual needs of different customers, thus improving the market turnover rate. This paper summarizes financial big data, analyzes the financial marketing strategies of commercial banks under the background of financial big data, and finally puts forward the optimization measures of marketing strategies based on financial big data, hoping to help promote the healthy and sustainable development of the financial industry.

Do Chinese firms speculate during high economic policy uncertainty? Evidence from wealth management products

It has been well-documented that policy-related uncertainty has significant economic consequences. Studies show that US firms tend to delay investments and be conservative during periods of high economic policy uncertainty (EPU), but findings regarding Chinese firms suggest that they seem to act speculatively. This study examines the impact of policy uncertainty on firms' bank wealth management product (WMP) purchasing and helps better understand firm behaviour during high EPU. Using Chinese listed firms' bank WMPs purchasing data, we find that high EPU is associated with a higher probability of bank WMPs being purchased. Moreover, a 100% increase in EPU is associated with an 11.14% increase in average bank WMP holdings in the sample. We provide evidence that Chinese firms are not speculative, but prudent, and use bank WMP holdings to hedge the risk of policy uncertainty. Additionally, we show that financial constraints are the channels through which EPU affects bank WMP holdings.

Global Asset Allocation Based on Principal Component Risk Parity Model

Contemporarily, as the economy enters the new normal, Chinese real estate prices that rose almost unilaterally in the past will be difficult to appear again. With just break, the high yield of wealth management products will no longer be the scene. Therefore, the importance of risk diversification among different assets, i.e., the allocation decision of major assets, becomes more and more prominent. This paper mainly investigates the application of principal component risk parity model in asset allocation. Specifically, the article focuses on the result of the experiment and the importance of this model. In the experiment, the principal component risk parity model is compared with the traditional risk parity model. At the same time, the principal component parity risk model is further analyzed and compared with other models from the related formulae derivation. Finally, the corresponding conclusions are drawn, and the advantages and necessity of rational usage of risk parity model in asset allocation are put forward. Overall, these results shed light on guiding further exploration of finding efficient models to help with asset allocation.

Shadow Funding and Economic Growth: Evidence from China

AbstractUsing popular liability‐side wealth management products in China, we construct an informative measure of shadow funding and shadow credit by extension. This measure reflects the risk appetites of financial intermediaries and their ability to expand their balance sheets through bank–shadow‐bank cooperation. Our measure possesses unique predictive power for future economic activity. An increase in the measure corresponds to increases in investment and consumption, which, in turn, reduce financing costs due to improvements in economic development.

Managing Information Sensitivity: The Relationship between the Interbank Offered Rate and the Characteristics of Bank-Issued Wealth Management Products in China

Unlike previous studies that focused on measures and changes in debts’ information sensitivity, this paper examines how banks in China manage the information sensitivity of wealth management products (WMPs), one of the most important assets in Chinese shadow banking. Employing the interbank offered rate to proxy investors’ incentives for private information production, we find when the interbank offered rate rises for newly issued WMPs, banks shorten their maturity, provide them with more guarantees, and reduce the risk of their underlying assets. Moreover, these effects are more pronounced in small and medium-sized banks (SMBs) relative to the largest five state-owned (Big5) banks. Furthermore, we also find that banks reduce the number of WMPs issued to institutional investors when the interbank offered rate rises, and this effect exists in both Big5 banks and SMBs. Our findings suggest that banks adjust the characteristics of WMPs to maintain WMPs’ information insensitivity when investors’ incentives to produce private information increase. These results also indicate that there is less need for Big5 banks to adjust WMPs’ characteristics since individual investors consider WMPs issued by Big5 to be safer and thus to have less incentive to produce private information. However, institutional investors understand WMPs’ risks better and, therefore, all banks reduce the number of issues to them when the interbank rate rises.

Communication with the Elderly Customers in the Digital Era: A Case of Video-Chat Service of a Korean Insurance Company

Objectives: BigTech companies have expanded into the financial sector and offer various services such as payments, lending, insurance, wealth management, and other financial products. However, elderly individuals may struggle to adapt to new technologies and digital financial services due to a lack of familiarity and experience with digital devices and online platforms. The purpose of this study was to examine the case of a Korean life insurance company that introduced video chat services to address the digital inclusion of elderly customers, the proportion of whom is increasing due to population aging in the wave of pandemic-accelerated digitalization. Methods: In this case study, we investigated the M Life insurance company’s successful introduction of video chat-based customer service to replace existing customer walk-in centers. Two series of customer satisfaction survey results are presented. In addition, based on the senior technology acceptance model (STAM) theory, we investigated the factors contributing to the success of video chat customer service and suggested directions of development. Results: In accordance with the STAM, personal characteristics such as self-efficacy, anxiety, and health deficiencies, as well as environmental supports including assistance and guidance, were key factors contributing to the successful adoption of and intention to use the video chat service among senior customers. Conclusions: Through video chat-based customer service, customers can enjoy the benefits of non-face-to-face, time-agnostic, and location-agnostic interaction. Additionally, the company benefits from improved human resource efficiency and employee satisfaction.

A close look at wealth management products from the Buyer's perspective: Evidence from China

This study contributes to the shadow banking literature by investigating the determinants, market reactions, and consequences of wealth management products (WMPs) purchased by listed companies in China. The empirical results show that non-state-owned enterprises (non-SOEs) with a higher percentage of equity financing, more cash, higher profitability, larger total assets, lower sales growth, younger firm age, and lower Shanghai interbank offered rate (SHIBOR, which represents the overall availability of liquidity and credit in the economy) are more likely to buy WMPs. However, these factors largely fail to explain the WMP purchase behaviour of SOEs; in particular, compared to local SOEs, central SOEs are less likely to buy WMPs. We further find that the market reaction is significantly negative around the announcement of WMP purchases, and this finding is more pronounced for companies that have been listed for less than one year and are non-SOEs. Moreover, our results show that WMPs with longer maturity and larger amounts tend to have higher expected and real returns; in addition, SOEs are more likely to hold WMPs with longer maturity and have higher returns. This study is the first to investigate the determinants, market reactions, and consequences of WMP purchase behaviour in SOEs and non-SOEs, and it has implications for the financial assets held by non-financial firms. The results will be of interest to regulators, policymakers, and future academic research.

Does cash dividend smoothing affect the wealth management products purchased by listed companies?

ABSTRACT Using the regulatory policy on cash dividends implemented in 2013 as the research context, this study develops a difference-in-difference (DID) model using the data of Chinese A-share non-financial listed companies from 2011–2019, and found that cash dividend smoothing reduces the wealth management products (WMPs) purchased by companies. Channel tests demonstrated that cash dividend smoothing reduces the company’s WMPs by increasing the financial leverage and attracting independent-type institutional investors to exert debt governance effect and institutional investor governance effect. Additional analysis found that cash dividend smoothing has a greater effect on WMPs when there are serious managerial agency problems within the firm, the nature of ownership is private, and in regions with dense branches of financial institutions. More importantly, cash dividend smoothing was found to alleviate the crowding-out effect of WMPs on industrial investment and help return the firms’ capital to industrial operations.

Trial Analysis of the Development of China’s Commercial Banks’ Wealth Management Business and Its Countermeasures

In recent years, China’s economy has been developing rapidly, and domestic investors’ concept of financial management has been increasing, as well as the demand for financial products. Domestic commercial banks have continuously responded to this phenomenon by continuously launching new wealth management products and enriching the number of wealth management products, and the Chinese wealth management market has successfully stepped into a stage of rapid development. In April 2018, the People’s Bank of China came out with new regulations on asset management to support foreign legal financial institutions to enter the Chinese market, which is not only conducive to learning from foreign advanced experience, but also promotes the healthy and sustainable development of the domestic financial market, and Chinese commercial banks’ wealth management business is facing new development opportunities. As an important intermediary business of banks, the development of banks’ wealth management activities generally reflects the trend of continuous enrichment of investment varieties and expansion of financial market scale, and while it plays a positive role in broadening investment channels and improving business models, there are also many problems. This paper analyzes the development status and problems of commercial banks’ wealth management business with a view to providing some policy suggestions to commercial banks, investors and regulators.

The Risk of Implicit Guarantees: Evidence from Shadow Banks in China

Abstract We study how risks spill over from shadow banking activities to traditional banks through implicit guarantees. Using data on wealth management products (WMPs), China’s largest shadow banking component, we find that banks with higher interbank borrowing rates strategically provide stronger implicit guarantees to their issued WMPs. Extending implicit guarantees builds bank reputations and reduces rollover costs while exposing banks to losses from shadow banking activities. Our findings thus suggest a bank-specific approach to assessing the risk of implicit guarantees based on transparent and real-time interbank rates.

Shadow banking and the bank lending channel of monetary policy in China

We study how shadow banking affects the effectiveness of monetary policy in China. Using novel data on bank-issued off-balance sheet wealth management products (WMPs), we show that banks improve their on-balance sheet risk profile by issuing WMPs. This in turn lowers the sensitivity of banks’ wholesale funding cost to monetary policy and reduces the effectiveness of the bank lending channel. The effect of our mechanism on total credit is quantitatively similar to the effect arising from the substitution between traditional loans and shadow banking loans previously analyzed in the literature. The channel documented in this paper has novel implications for the regulation of banks’ off-balance sheet activities and market-based funding.

Does the truth rest with the minority? Divergent views on nonfinancial firms' financial investments from the private equity market

We investigate how the seasoned equity market evaluates nonfinancial firms that recently bought wealth management products (WMPs). Using a sample of Chinese firms, we find that the stock market reacts less positively to private equity placements (PEPs) by firms that recently purchased WMPs (i.e., quasi-deposits) than to those that did not. Further analysis suggests that compared with retail investors, sophisticated (i.e., institutional and high-net-worth) investors pay a higher price for the shares of these WMP-buying firms. After PEPs, we find that the long-term operating performance and firm value of WMP-buying firms are higher than those of non-buying firms. Overall, the findings suggest that: (i) engaging in shadow banking activities (buying WMPs) does not mean a firm is distracted, and (ii) sophisticated investors are less concerned than retail investors about a firm's shadow banking activities.

Risk contagion among banks: evidence from Chinese data

ABSTRACT This study investigates risk contagion in the financial system using a sample of 140 Chinese banks. We create the risk contagion index, with and without bank WMPs (Wealth Management Products), and bank’s lending matrix. Based on the index, we find Industrial and Commercial Bank of China (ICBC), Industrial Bank, and Bank of Shanghai to have the highest contagion risk among, respectively, state-owned, joint-stock and city commercial banks. We simulate risk contagion with these three banks as the initial bankrupt banks and at a wide range of default loss rates. We find that their hypothetic bankruptcies do not cause other banks to follow suit, but smaller banks are more subject to the contagion effect of systemic risk. Further results show that banks with WMPs cause greater risk contagion than those without.

Regulatory arbitrage, bank opacity and risk taking in Chinese shadow banking from the perspective of wealth management products

We set up a general equilibrium model of Chinese wealth management products (WMPs), which are deeply rooted in traditional Chinese commercial banks. According to this model, we proposed two hypotheses, namely, the regulatory arbitrage and information asymmetry hypotheses. We tested the hypotheses by using data on Chinese WMPs during the 2006–2015 period. We found that regulatory arbitrage was the main driver of WMPs’ rapid expansion. The greater the pressure from regulation was, the greater the incentive for commercial banks to issue off-balance sheet WMPs and take risks. When the regulatory standard became strict or loose, the effect of regulatory arbitrage on marginal risk-taking behavior became reinforced or reduced, respectively. We also argue that transparency can moderate drive-up behavior. Some relevant suggestions are provided for solving the problems of overexpansion and risk-taking behavior according to the results.

Wealth management products, banking competition, and stability: Evidence from China

Shadow financing through off-balance sheet wealth management products (WMPs) has become increasingly important besides deposits in China. We quantify the economic magnitude of the effect of WMPs on banking stability in an equilibrium model calibrated to Chinese banking sector data. Alternative equilibria emerge which deviate substantially from the observed banking system and lead to severe financial distress and large welfare losses. Rollover costs from the WMP market and negative shocks to the asset market underlying WMPs can exacerbate banking instability. Moreover, we show that smaller and medium sized banks are comparably relevant for financial stability as the systemically important big 4 banks in China.

Analysis of the Reasons Why Hong Kong does not have Short-term Financial Products

Whether in mainland China or Hong Kong, due to the steady development of China's economy and the continuous growth of national income, residents' awareness of financial management has become stronger and stronger, so the development of the financial product industry is also booming. In the mainland, an increasing number of people are investing their spare money in currency funds such as Short-term wealth management products under a good momentum of development. However, the development of such currency funds in Hong Kong is slower than that in the mainland. This article will explore and analyze the reasons for the lack of Short-term money funds in Hong Kong from different angles.

Investors’ Heterogeneous Preferences for Structured Financial Products in China: The Impact of Demographic Characteristics

Purpose – Structured financial products (SPs) have become very popular with retail investors in recent years. Investors’ preferences play a critical role when investing in SPs. The objective of this study is to understand SP investment behavior by investigating Chinese investors’ heterogeneous preferences for choosing wealth management products (WMPs) with certain attributes.Theoretical framework – Investors with different demographic characteristics show different preferences in their SP investments.Design/methodology/approach – We employ the choice experiment (CE) method and examine preference heterogeneity using the multinomial logit (MNL) and the mixed logit (MXL) models.Findings – (i) The attributes of small bank, minimum amount, non-guaranteed floating return and guaranteed floating return significantly affect the choice when purchasing WMPs. (ii) There are significant heterogeneous preferences for minimum amount. (iii) These four characters are the sources of heterogeneous preferences for minimum amount.Practical & social implications of research – This information can contribute to understanding the heterogeneous preferences of investors, which can help in designing marketable WMPs to target different kinds of investors.Originality/value – The main contribution of the research is it examines investors’ heterogeneous preferences for SPs. The study provides empirical evidence of which attributes of structured products significantly affect investor preferences. It also reveals which characteristics of investors affect their heterogeneous preferences. Keywords: Structured financial products, heterogeneous preferences, choice experiments, mixed logit model, behavior.

Applying Scenario Planning in the Future of Bank Oranye Priority Banking Services

Bank Oranye is engaged in the provision of priority banking services and becomes one of the leading Indonesia’s state-owned enterprises that provides global wealth management. Apparently, Bank Oranye faced an intense competition with several players in priority banking service (which gradually provides complete wealth management products and/or services and able to go digitalize) and compete with investment products substitute offered by Fintech. This research intends to uncover the possibilities by analyzing the driving forces that could affect the priority banking business. The end result is to develop the scenarios and the formulation of implications and options. The scenario planning is developed based on external analysis (using PESTEL model and Porter 5 Forces) and internal analysis (VRIO analysis and Business Model Canvas). The critical uncertainties are determined by conducting in-depth interviews with company’s experts and literature study. The two critical uncertainties that will affect priority banking business of Bank Oranye in the next 5 years are: Technology Development and Adoption in the core banking system (including the adoption among priority customers) and Government Policy and Regulations. These two critical uncertainties will shape the way Bank Oranye performs with its vision to becomes one stop financial solutions for its customers.

Shadow banking, macroprudential policy, and bank stability: Evidence from China’s wealth management product market

This study examines whether shadow banking activities reduce the stability of 269 commercial banks in China, and if they do, whether a tightening macroprudential policy could mitigate this negative effect. A quarterly bank level, unbalanced panel data of wealth management products (WMPs) from 2006 to 2018 measured China’s shadow banking activities. The results show that China’s shadow banking activities weaken the stability of banks, especially for principal-floating WMPs, long-term WMPs, and WMPs issued to individual investors. China’s macroprudential supervision improves the soundness of banks and eases the negative effects of shadow banking on banking stability. Our results suggest the necessity to design specific macroprudential policies based on different kinds of shadow banking activities and different types of banks.