What Drives Pricing Behavior in Peer-to-Peer Loan Primary and Secondary Markets?

Table of Contents

1 Introduction

1.1 Motivation

1.2 Literature Review

1.3 Bondora Overview

1.4 Lending on Bondora

1.5 Does Bondora fulfil the classic P2P promises?

2 Main Findings

2.1 The Datasets

2.2 Dummy Regressions

2.3 Primary Market Regression

2.4 Secondary Market Regression

3 Closing Section

3.1 Conclusion

3.2 Limitation

Research Objective and Core Topics

This thesis examines the driving factors of pricing behavior within the peer-to-peer (P2P) lending platform Bondora, specifically analyzing mechanisms in both its primary and secondary markets through regression analysis of borrower and loan characteristics.

• Primary market interest rate determinants
• Secondary market discount rate factors
• Impact of borrower demographics and employment status
• Evaluation of classic P2P platform promises
• Analysis of irrational trading and mispricing patterns

Excerpt from the Book

Summary of Chapters

1 Introduction: Provides the motivation for P2P lending, a literature review on relevant research, an overview of the Bondora platform, and an examination of whether Bondora fulfills classic P2P promises.

2 Main Findings: Describes the primary and secondary market datasets, conducts dummy regressions on borrower characteristics, and provides in-depth regression analyses for both markets.

3 Closing Section: Summarizes the study’s findings regarding price determinants and acknowledges limitations encountered during the analysis.

Keywords

P2P lending, Bondora, interest rate, secondary market, discount rate, regression analysis, default risk, pricing behavior, expected loss, financial technology, borrower characteristics, information asymmetry, asset mispricing, loan fulfillment, credit scoring.

Frequently Asked Questions

What is the core focus of this research?

The work investigates the factors that drive pricing behavior for loans on the P2P platform Bondora, distinguishing between original loan issuance in the primary market and trading in the secondary market.

What are the primary fields of study included?

The research covers P2P lending mechanisms, financial regression modeling, loan pricing factors, and the socio-economic determinants of creditworthiness.

What is the central research question?

The study seeks to identify which specific variables dictate interest rate settings on the primary market and discount rate variations on the secondary market for P2P loans.

Which scientific methodology is applied?

The author employs quantitative empirical analysis, specifically performing various regression models (including dummy regressions and z-standardized coefficients) on two large datasets retrieved from Bondora.

What topics are discussed in the main section?

The main section analyzes borrower demographics (gender, education, employment) in relation to interest rates, performs regression analysis on primary and secondary market behavior, and tests for normal distribution of model residuals.

Which keywords best describe this research?

Key terms include P2P lending, Bondora, regression analysis, interest rates, discount rates, pricing behavior, and default risk.

How does Bondora's rating system influence pricing?

Bondora's platform sets interest rates based on an internal rating system, which is heavily influenced by calculated expected loss and predicted recovery success rates rather than direct lender-borrower negotiation.

What conclusions are reached regarding the secondary market?

The study concludes that secondary market pricing is often influenced by irrationality and cognitive limitations, as the regression model explains only a small fraction (1%) of the variance in discount rates.