Information contagion in P2P lending markets: empirical evidence from China

Abstract

This study tests both information contagion and the rationality of investors in P2P lending markets and discusses who pay the burden for information contagion. This can be done by exploring the effect on Renrendai, which runs a totally different business model, of reports about Ezubao a company which created fake financial products and took large amounts of money from investors. Through an examination of data from Renrendai, one of the largest P2P lending platforms in China, from the period between October 31st 2015 and February 2nd 2016, we find that the volume on Renrendai experienced no significant change but its interest rate increased suddenly and continuously after the announcement of the bad news concerning Ezubao. This indicates that the failure of one platform can easily influence other platforms regardless of their business models. We also find that who suffered from the shock of other platform’s bad news were the borrowers, especially those with high credit grade and long-term loans, instead of the platform itself.