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Peer-to-peer lending: Shift of pricing regime and changes in risk sensitivity

Author

Listed:
  • Chen, Jiakai
  • Huang, Wei
  • Wang, Xinruo

Abstract

We investigate the changes in risk sensitivities of interest rates following a shift in Prosper.com's pricing mechanism from auctions to posted prices. We find that the shift leads to reduced sensitivities of loan pricing to credit risk. Furthermore, this change results in higher profits for the platform while investors receive less compensation for the credit risk they undertake. Additionally, borrowers encounter less credit rationing. Analyses of repeat borrowers under both pricing regimes and tests with data under Prosper's upgraded posted prices confirm these findings. We argue that less risk-based pricing results from the incentives of the lending platform.

Suggested Citation

  • Chen, Jiakai & Huang, Wei & Wang, Xinruo, 2025. "Peer-to-peer lending: Shift of pricing regime and changes in risk sensitivity," Journal of Banking & Finance, Elsevier, vol. 176(C).
    • Handle: RePEc:eee:jbfina:v:176:y:2025:i:c:s0378426625000792
    DOI: 10.1016/j.jbankfin.2025.107459
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    More about this item

    Keywords

    Risk-based pricing; Peer-to-peer lending; Credit risk; Pricing regimes; Auctions; Posted prices;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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