Effects of technological inovations on financial markets

Innovation is a complex concept with diverse interpretations in the literature, involving the creation, adoption, and utilization of novel ideas and technologies that add value in economic and social contexts. As defined by Mary Crossan and Marina Apaydin, innovation involves the renewal and enlargement of products, services, markets, production methods, and management systems. Rossana Garcia and Roger Calatone measure "innovativeness" by the degree of newness in innovations, ranging from highly innovative to less innovative products. Innovation drives significant changes in traditional aspects of life and long-term economic progress. It fosters creativity and idea development, serving as a catalyst for economic growth and improving product quality to meet consumer demands. Innovations in financial markets have revolutionized investment management, transactions, and access to financial instruments, enhancing profitability and competitiveness for businesses. For consumers, innovation enhances product quality and efficiency, while for businesses, it optimizes production processes and business models, leading to increased demand and profits. Innovations such as internet banking, cloud technologies, blockchain, and smart contracts have significantly transformed the financial services industry, altering client behavior and the financial system at large. This thesis aims to analyze the historical evolution of financial markets, focusing on the emergence of innovations that have shaped modern financial markets. It introduces current trends in financial market innovations, highlighting key technological advancements of the 21st century. The study estimates investing trends across major global markets, including China, the USA, the UK, Euronext, and Germany, and their impacts on investment strategies. It creates and compares two types of investment portfolios: a beta-neutral classical portfolio (2002-2010) and a technology-focused portfolio (2010-2024), analyzing their returns, correlation to market, volatility, and performance. The research addresses the following questions: How do technological innovations impact the development of financial markets? How does technological development influence investment trends in different countries? How does technological development affect investment strategies and market volatility? By answering these questions, the thesis provides a strategic analysis of the transformative power of innovations on financial markets, offering insights for future investment strategies.