Cross Section Analysis of the KBW Nasdaq Financial Technology Index

Abstract

Financial Technology (FinTech) has emerged as a potentially transformative force in the various financial segments. To track this new sector garnering investor attention, Keefe, Bruyette & Woods and Nasdaq, came up with KBW Nasdaq Financial Technology Index (KFTX) on July 18, 2016 comprising of 49 constituents. The objective of this paper is to compare KFTX performance with the leading market indices, including S&P 500 and Dow Jones Industrial Average index. The data is collected for a period of 12 months, 24 months and 34 months starting from July 18, 2016. The findings of the analysis suggest that the returns for KFTX are consistently higher for 12 months, 24 months and 34 months over S&P 500 and Dow Jones Industrial Average. The cross section analysis of the 48 KFTX index constituents sub-classified into eight categories representing several different financial industry groups and businesses indicate that for the 34 months period networks and payments gave returns of 82.1% and 71.6% whereas asset management business gave an average negative return of – 51.0% and the specialty marketplace lenders gave a return of 26.6%. This indicates a significant non-uniform growth within the FinTech industry. The findings motivate for an in-depth analysis of the various industry groups and businesses within the FinTech industry and to explore further the reasons and attributes which differentiate these sectors. The study has implications for policy makers, asset management companies and investors in terms of understanding and framing policies for FinTech investments.