Paralyzed by Shock: The Portfolio Formation Behavior of Peer-to-Business Lending Investors

Gregor Dorfleitner, Lars Hornuf and Martina Weber

No 7092, CESifo Working Paper Series from CESifo

Abstract: We study the investor behavior on a leading peer-to-business lending platform and identify a new investment mistake – a default shock bias. First, we find that investors stop investing in new loans and cease from diversifying their portfolio after experiencing a loan default. The default shock significantly worsens the risk-return profile of investors’ loan portfolios. The defaults investors experience are often not beyond what could have been expected based on the information that was provided by the platform ex-ante. Second, investment experience on the platform is related to better investment decisions in general, but does not reduce the default shock bias. These findings have important implications not only for the behavioral finance literature, but also more generally for new forms of Internet-based finance.

Keywords: behavioral finance; investment bias; peer-to-business lending; crowdlending; RAROC; diversification (search for similar items in EconPapers)
JEL-codes: G11 G40 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp7092.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7092

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().