Download This PaperThe Effect of Secondary Market Closure on Primary Market Liquidity: Evidence from Peer-to-Peer Lending
85 Pages Posted: 31 Dec 2019 Last revised: 26 Feb 2026
Date Written: January 05, 2025
Abstract
Using intraday peer-to-peer issuance data, we investigate the impact of secondary market existence on primary market liquidity. Consistent with the predictions of our theoretical framework, the closure of Prosper’s secondary market reduces its primary market liquidity, resulting in longer times to fund loans, a smaller fraction of loans funded in the first hour, and a lower percentage of loan listings ultimately funded. Furthermore, we demonstrate that primary market prices decrease for high-risk loans and increase for low-risk loans after Prosper’s secondary market closes. We also find a positive spillover on the primary market liquidity of Prosper’s main competitor, Lending Club. Moreover, we find robust results when Lending Club unexpectedly closed its secondary market four years later.
Keywords: Market Liquidity, Funding Time, Secondary Market, Primary Market, P2P lending
JEL Classification: G12, G23, G28
Suggested Citation: Suggested Citation
Craig W. Holden
Indiana University - Kelley School of Business - Department of Finance ( email )
Kelley School of Business
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Mingfeng Lin
Georgia Institute of Technology - Scheller College of Business ( email )
800 West Peachtree St.
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HOME PAGE: http://https://mlin.scheller.gatech.edu/
Jun Yang
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)
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