Peer-to-peer loan returns: heterogeneous effects across quantiles

LYÓCSA, Štefan, Petra VASANICOVA and Oleg DEEV. Peer-to-peer loan returns: heterogeneous effects across quantiles. Applied Economics Letters. UK: Taylor & Francis, 2024, 6 pp. ISSN 1350-4851. Available from: https://dx.doi.org/10.1080/13504851.2023.2298412.

Basic information

• Original name: Peer-to-peer loan returns: heterogeneous effects across quantiles
• Authors: LYÓCSA, Štefan, Petra VASANICOVA and Oleg DEEV.
• Edition: Applied Economics Letters, UK, Taylor & Francis, 2024, 1350-4851.

Other information

• Original language: English
• Type of outcome: Article in a journal
• Field of Study: 50200 5.2 Economics and Business
• Confidentiality degree: is not subject to a state or trade secret
• WWW: URL
• Impact factor: Impact factor: 1.600 in 2022
• Organization unit: Faculty of Economics and Administration
• Doi: http://dx.doi.org/10.1080/13504851.2023.2298412
• UT WoS: 001131736600001
• Keywords in English: Peer-to-peer loans; loan performance; profit-scoring; quantile regression
• Tags: International impact, Reviewed

Abstract

In this study, we examine how loan and borrowers' characteristics have a different impact on profitable and non-performing loans. Using a quantile regression profit-scoring model estimated with 472,106 loans from the U.S. P2P lending platform Lending Club, we show that higher loan amounts, loan term, interest rate and lower income are associated with lower returns for less creditworthy borrowers, i.e. for under-performed loans. Conversely, for performing loans, higher loan amounts, loan term, interest rates and lower income are associated with higher returns. We also find that borrowers' credit (debt-to-income and FICO score) matters mostly for the tails of the return distribution, to mitigate losses for non-performing loans and improve profits for highest-performing loans. The results have broader implications for the design of credit risk models.