Marketplace Lending, Information Aggregation, and Liquidity

70 Pages Posted: 16 Nov 2016 Last revised: 11 May 2020

See all articles by Julian R. Franks

Julian R. Franks

London Business School - Institute of Finance and Accounting; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Nicolas Andre Benigno Serrano-Velarde

Bocconi University

Oren Sussman

European Corporate Governance Institute (ECGI)

Date Written: March 16, 2020

Abstract

We address a puzzle whereby lending marketplaces, aimed at directly connecting retail lenders and borrowers, retreat from auctions and take on the role of price setting and credit allocation, despite evidence that retail investors possess valuable soft and nonstandard information. Our analysis uses a unique data set on 7,455 auctions and 34 million bids, from the leading British peer-to-business platform. We find that the main problem of the platform was its vulnerability to liquidity shocks, resulting in sizable deviations from information efficiency. These increased over time due to a growing role played by non-crowd players, particularly large investors and algorithms.

Keywords: Auctions, Liquidity, Fintech, Market Design, Information Aggregation

JEL Classification: D44, G14, G23

Suggested Citation

Franks, Julian R. and Serrano-Velarde, Nicolas Andre Benigno and Sussman, Oren, Marketplace Lending, Information Aggregation, and Liquidity (March 16, 2020). European Corporate Governance Institute – Finance Working Paper No. 678/2020, Review of Financial Studies (Forthcoming), Available at SSRN: https://ssrn.com/abstract=2869945 or http://dx.doi.org/10.2139/ssrn.2869945

Julian R. Franks

London Business School - Institute of Finance and Accounting ( email )

Institute of Finance and Accounting
Sussex Place - Regent's Park
London NW1 4SA
United Kingdom
+44 20 7262 5050 x3449 (Phone)
+44 20 7724 3317 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: https://ecgi.global/

Nicolas Andre Benigno Serrano-Velarde

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://https://sites.google.com/site/nicolasserranovelarde/

Oren Sussman (Contact Author)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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