The Effect of Secondary Market Closure on Primary Market Funding Time: Evidence from Peer-to-Peer Lending

45 Pages Posted: 31 Dec 2019 Last revised: 21 Nov 2022

See all articles by Craig W. Holden

Craig W. Holden

Indiana University - Kelley School of Business - Department of Finance

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology

Kai Lu

University of Science and Technology of China - International Institute of Finance, School of Management

Jan Schneemeier

Indiana University - Kelley School of Business

Zaiyan Wei

Purdue University - Krannert School of Management

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 18, 2022

Abstract

We derive the theoretical result that the existence of a secondary market increases primary market liquidity in the form of a shorter funding time, which is an important measure of market liquidity. Using intraday peer-to-peer issuance data, we find that the closure of Prosper’s secondary market reduces its primary market liquidity, including longer times to fund loans, a smaller fraction of loans to be funded in the first hour, and a lower percentage of loan listings to be funded ultimately. We also find a positive spillover on the primary market liquidity of its competitor, Lending Club. Moreover, we find robust results when Lending Club unexpectedly closed its secondary market four years later, which increases the funding time and reduces the fraction of loans funded in the first hour in its primary market.

Keywords: Market liquidity, Funding Time, Secondary Market, Primary Market, P2P lending

JEL Classification: G12, G23

Suggested Citation

Holden, Craig W. and Lin, Mingfeng and Lu, Kai and Schneemeier, Jan and Wei, Zaiyan and Yang, Jun, The Effect of Secondary Market Closure on Primary Market Funding Time: Evidence from Peer-to-Peer Lending (November 18, 2022). Available at SSRN: https://ssrn.com/abstract=3502006 or http://dx.doi.org/10.2139/ssrn.3502006

Craig W. Holden

Indiana University - Kelley School of Business - Department of Finance ( email )

Kelley School of Business
1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3383 (Phone)
812-855-5875 (Fax)

HOME PAGE: http://www.kelley.iu.edu/cholden

Mingfeng Lin

Scheller College of Business, Georgia Institute of Technology ( email )

United States

Kai Lu

University of Science and Technology of China - International Institute of Finance, School of Management ( email )

96 JinZhai Rd
Hefei, Anhui 230026
China

Jan Schneemeier

Indiana University - Kelley School of Business ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

Zaiyan Wei (Contact Author)

Purdue University - Krannert School of Management ( email )

100 Grant St
West Lafayette, IN 47907-2076
United States
(765) 494-5958 (Phone)

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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