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Asset mispricing in loan secondary markets

Author

Listed:
  • Mustafa Caglayan

    (Heriot-Watt University)

  • Tho Pham

    (University of Reading)

  • Oleksandr Talavera

    () (University of Birmingham)

  • Xiong Xiong

    (Tianjin University)

Abstract

This study examines the presence of mispricing in Bondora, a leading European peer-to-peer lending platform, over the 2016-2019 period. Implementing machine-learning methods, we calculate the likelihood of success for loan resale in Bondora secondary market and compare with ex-post outcomes. We find evidence of mispricing mainly driven by the differences in market participants' perceptions about asset values: low-quality assets are successfully sold while high-quality assets are not. Once sellers discover buyers' beliefs about asset prices, they revalue their assets according to buyers' perception to exploit this mismatch in subsequent listings. Our results are robust to various statistical and machine learning methods.

Suggested Citation

  • Mustafa Caglayan & Tho Pham & Oleksandr Talavera & Xiong Xiong, 2019. "Asset mispricing in loan secondary markets," Discussion Papers 19-07, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:19-07
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    More about this item

    Keywords

    mispricing; online secondary market; peer-to-peer lending; belief dispersion;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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