The importance of detailed patterns of herding behaviour in a P2P lending market

ABSTRACT

Previous studies have provided contradictory evidence as to whether investors’ herding behaviour is rational or not in P2P lending markets. In this study, a path analysis model is adopted to identify a logical leap with regard to judgements of the rationality of investors’ herding behaviour per se. Empirical results show that the indicators of herding behaviour used in previous studies (i.e., number of lenders and relative time span for funding) are conflictingly affected by other attributes such as the borrower’s credit score and loan amount. This means that the rationality of investors’ herding behaviour is not deterministic but changes with the investors’ credit assessment style in each market. In addition, this study finds that investors’ accelerating bidding participation over time is positively related to loan repayment results through unidirectional pathways from the borrower’s credit score and loan duration, implying that investors’ bidding patterns can have predictive power concerning loan performance outcomes.

KEYWORDS:

• Herding behavior
• P2P lending
• bidding pattern
• path analysis

JEL CLASSIFICATION:

• D82
• G14

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.