Fintech and household participation in risky financial markets: evidence from China

Abstract Low participation in risky financial markets limits households’ access to higher returns and reduces market efficiency. While fintech offers opportunities to diversify portfolios, limited participation remains prevalent, particularly in developing countries such as China. Using data from the China Household Finance Survey, with a sample of 124,565 households, this study explores whether fintech can mitigate this problem. By applying a probit model and addressing endogeneity through a quasi-experimental design and instrumental variables, along with robustness checks using variable replacements and model substitutions, the findings reveal that fintech significantly increases participation in risky financial markets. A 1% increase in fintech, as measured by the China Digital Financial Inclusion Index, increases the probability of participation by 0.206 percentage points. The relationship is moderated by social interactions and financial literacy: a 1-unit increase in social interactions is associated with a 0.096 increase in the marginal relationship between fintech and participation, whereas a 1-unit increase in financial literacy is associated with a 0.047 decrease. Additionally, the relationship is heterogeneous, varying by household and regional characteristics. This study highlights the role of fintech in enhancing household participation and underscores the moderating roles of social capital and human capital. These findings have implications for the digital divide and offer practical recommendations for individuals, financial institutions, and governments, including developing social investment platforms, promoting inclusive financial education, and incentivizing fintech services in underserved areas.