Investing in Online Peer to Peer Loans: A Platform for Alpha

Abstract

Peer to peer (P2P) lending is an emerging asset class that potentially offers investors relatively high risk adjusted returns and a good way to diversify portfolios. However, little research has empirically explored the returns of P2P loans. This study explores the investment returns of P2P loans and the impact of P2P loans on investment portfolios. We draw data from the leading P2P lending platform, Lending Club, and compare the 2007-2014 investment returns from Lending Club to other assets and look at how P2P loans affect the efficiency of portfolios. The results suggest that P2P loans offer relatively high risk adjusted returns that can improve the efficiency of investment portfolios and can help investors achieve alpha