Research On The Herding Behavior Of Peer To Peer Lending In China

Private Finance play a significant role in meeting the financing needs of micro and small enterprises in China, which is a effective supplement for the financial system. With the development of information technology, an Internet-based P2P Lending went into our lives. This innovative P2P Lending can offer all the functions m from information publishing, searching to the completing of the Exchange. The borrower and the lender will signed a legally electronic contract to guarantee their equity, in addition to pay the interest, borrowers need to pay the agency fee to the platform. As a network of financial intermediaries,P2P lending platform can effectively improve the credit status of the borrower, reducing the information asymmetry between borrowers and lenders.Actually, The personal credit system in china is not yet complete, so the asymmetry in P2P lending may make the investment in a adverse selection, Meanwhile, the lack of a small investment experience, the lenders will confused by the massive borrowers’lending information. When lenders decide to invest in a project, they are likely to consider the number of lenders in the project. If the lender’s investment decision make impact on the others, then the number of lenders may become a special message. In another words, a borrower project which has many investors will attract more lenders to participate. Such investment phenomenon is so-called herding behavior in the field of securities investment.Herding behavior is related to the behavior between multiple investment entities, it has great influence on the formation of the lending relationship, even related to the income of the investment. Therefore, herding in P2P lending are worthy of attention. The introduction of herding our network of lending market analysis, It has practical significance to introduce herding in the P2P lending study. For the P2P lending platform, if they want to maintain the sound and stable development, they should improve the quality of market participants make effort in cultivating the rational investment philosophy of the lender. Meanwhile, for the participants of the P2P lending, it will make them have a better self-understanding and culture a mature means of financing and reasonable investment conception.First this paper has make a comparative analysis on the P2P lending platform between home and abroad.we found that because of the different business philosophy, there are difference in the assessment of credit,lending project,the borrowing matching, etc. Ppdai established in2007, mainly to follow the foreign platform for the operating mode. As a intermediary platform, ppdai offer the lending participants a pure exchange space, the borrower is not strictly call for the tedious field assessment, lenders can freely choose the right investment object, so in this paper, we select ppdai as the research subjects.In the third chapter, this paper make summary of the herding study. We argue that all herd behavior can be explained by rational analysis of the participants or their herd mentality. We use direct methods to test the herding behavior in P2P lending market. The empirical results show that there is a aggregation tendency in P2P network loan lenders:with the increase in the number of tender, the tender time intervals are getting shorter, the tender are mainly focused on the upcoming full scale period in a list. Meanwhile, in the performance of individual, with the increase of the number of tender, the probability of subsequent tenders will increase. This shows that herd behavior is existent in the P2P lending market, While the herd behavior in P2P lending market can also be explained by rational analysis or the herd mentality.In terms of the market effect, The scholars research focused on the impact of the market price and trading volume. The main negative impact is exacerbating the financial crisis.while, in different conditions and mechanisms, herd behavior may make a positive market effect.In this paper,we use Tobit regression and Cox proportional hazards model to verify the impact of herd behavior final. The empirical results show that:the herd behavior in P2P online lenders is significant and stable,which will reduce the returns to investors and have no significant influence on the borrower defaults, it can not help lenders identify better borrower.According to the empirical results, this paper give some investment advice to the lender, Meanwhile,It must clear the regulatory authorities at the government level and the lending platform should pay attention to the financial and legal risk an continue to optimize their Credit system, anti-fraud system and trading system.This papar aims to study the herd behavior in China’s P2P lending market. Compared to before the study, the possible innovations are as follows:1. The object of the research. Information financial ecology is the trend of the times. P2P lending is an outstanding information performance in our private finance. Based on P2P website (ppdai.com),this paper analysis network lending private investment behavior, from the phenomenon of herd behavior to the nature of the investor gains, we first provide real data to support our P2P lending research and show the specific circumstances of the borrowing.There is some reference value to policy-making and risk management.2. The methods of the research. This paper take into account the characteristics of the personal credit environment in China and set three part as the control variables.In details,we Used Logit regression to verify the existence of herd behavior, Tobit regression in the final interest rate and Cox proportional hazards model for the default rates.3. The results of the study,This paper show that herd behavior reduces the returns to investors, and did not play a significant impact on the defaults,which is different from the conclusions of the study abroad. This may be associated with the imperfect of China’s personal credit information system and high risk of private financial investment.Due to the limited research level, there are still a lot of inadequacies. Mainly concentrated as follows:1. In this paper,we only use ultimate borrowers interest rates and loan default rates from lenders to describe the impact of herd behavior on the lending market. In fact, in terms of market impact, the real rate of return is a better indicator, it can be compared with other investment and conclude more meaningful result.2. The universality of the conclusion need further validation. PPdai a pure intermediary platform. There are other platform in our country has its own unique operation and management mode.Wether the conclusions of this study are applicable to all types of P2P lending in china, it would take a further empirical research.