What is the best way to invest in public FinTech companies?

Abstract

The FinTech industry is becoming more attractive and is seen as a rising sector. Data shows that, in 2021, private investment vehicles, such as private equity firms, are investing more than ever in FinTech companies. The objective of this research is to determine if it is profitable to invest in FinTech stocks, and what the best strategy. Research demonstrates the profitability of different investment strategies across different markets and sectors, and yet there is no evidence and no studies applied to publicly traded FinTech companies. Based on the review of the literature on portfolio theory and market anomalies, the investment strategies chosen were value, momentum, and Combo. A small number of companies were studied and a small time period was analysed, which was due to data unviability. The investment strategies were applied, and the results were separated into two different time frames to isolate the impact of pandemic. A transaction cost analysis was done to access the portfolios’ persistence and the bootstrap method was applied to the mean excess return with the purpose of having more robust conclusions.The results indicate that, for the pre-pandemic period, investing in FinTech stocks using the momentum strategy is profitable. This strategy is even able to beat the market, producing a Sharpe ratio of 1.69. For the post-pandemic period, all the strategies employed turned out to be unprofitable and their results were quite inferior to the market.

Date of Award	17 Oct 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	João Andrade (Supervisor)