The Time-Varying Puzzle of Technology Finance and Systemic Risk Propagation: Nonlinear Transmission via Investor Sentiment and Asset Bubbles

The rapid expansion of technology finance poses complex challenges to systemic risk management, yet the existing literature lacks a game-theoretic framework to explain the dynamic risk transmission mechanisms involving investor sentiment and asset bubbles. This study examines the time-varying, nonlinear effects of technology finance on systemic risk through behavioral transmission channels by integrating a sequential game approach with a time-varying parameter stochastic volatility vector autoregression model. Using Chinese quarterly data from 2006Q1 to 2024Q4, this study captures endogenous market interactions and reveals a nonlinear, stage-dependent trajectory. Specifically, while technology finance amplifies systemic risk in the short term, it enhances system resilience over the long term. Furthermore, this paper identifies a cascading risk transmission mechanism: technology finance initially stimulates optimistic investor sentiment, driving short-term asset bubble formation and escalating systemic risk, whereas long-term patterns reflect market corrections driven by rational arbitrageurs and adaptive regulation. Exhibiting both stage and event dependence, these findings reconcile previously conflicting empirical evidence. Ultimately, this work develops a unified theoretical–empirical framework to elucidate how technology finance generates and transmits systemic risk, offering practical policy implications for fostering innovation while mitigating systemic risk.