Is Your Peer a Lemon? Relative Assessment of Risk Remuneration on the P2P Lending Market

University essay from Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Abstract: Using a sample of 11,752 loans from the Prosper peer-to-peer lending marketplace, this study employs a 5-stage methodology in order to analyze and compare the attractiveness of the P2P lending market with traditional investment alternatives in terms of risk remuneration. Results of default probability modeling in Stage I, loan expected return calculation in Stage II and efficiency frontier construction in Stage III present the evidence of high potential of P2P lending market as an investment alternative to the stock market, assuming maximum diversification opportunities and lender efficiency in interest rate setting. The subsequent stages (IV and V), while relaxing the two aforementioned assumptions, arrive to the conclusion that at its current level of development the peer-to-peer loan market offers an attractive investment risk remuneration particularly for lenders with longer investment horizon or with lower financial literacy.

  AT THIS PAGE YOU CAN DOWNLOAD THE WHOLE ESSAY. (follow the link to the next page)