Marketplace Lending, Information Aggregation, and Liquidity

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Julian Franks, Nicolas Serrano-Velarde and Oren Sussman

The Review of Financial Studies, 2021, vol. 34, issue 5, 2318-2361

Abstract: Lending marketplaces aimed at directly connecting retail lenders and borrowers retreat from auctions and, instead, set prices and allocate credit on their own, despite evidence that retail investors possess valuable soft and nonstandard information. We investigate this puzzle by analyzing a unique data set of 7,455 auctions and 34 million bids from a leading British peer-to-business platform. We find that the platform was vulnerable to liquidity shocks, resulting in sizable deviations from information efficiency. Deviations increased over time because of a growing role played by noncrowd players, particularly large investors and algorithms.

JEL-codes: G14 G23 G33 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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