Online Peer-to-Peer Lending: A Lenders' Perspective
Proceedings of the International Conference on E-Learning, E-Business, Enterprise Information Systems, and E-Government, EEE 2008, H. R. Arabnia and A. Bahrami, eds., pp. 371-375, CSREA Press, Las Vegas 2008
5 Pages Posted: 5 Mar 2009 Last revised: 31 May 2009
Date Written: July 14, 2008
Online Peer-to-Peer lending platforms claim to be beneficial for both borrowers and lenders by eliminating expensive intermediaries and reducing transaction costs. However, are the often inexperienced lenders who operate in a pseudonymous online environment with potentially significant information asymmetries really able to obtain an attractive return on their investment? This paper discusses the question by presenting profitability data from the US platform Prosper. Although the overall investment performance has not been satisfactory for most rating categories, it is shown that following some simple investment rules improves profitability of a portfolio and leads to acceptable returns for all credit rating categories with exception of the high-risk one.
Keywords: Peer-to-peer-lending, Return on Investment, Decision Rules
JEL Classification: G20
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