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A Low-Risk anomaly also in the crowdlending market

A Low-Risk anomaly also in the crowdlending market

27-11-2019 | From the field

The existence of a low-risk anomaly has been firmly established for stocks and corporate bonds. This paper1 adds to the literature by showing that the anomaly is also clearly present in the crowdlending market. Crowdlending has emerged in recent years as an innovative way to finance new ventures and small companies. Digitalized funding is a new technology, which may be prone to mispricing and inefficiencies.

  • David Blitz
    David
    Blitz
    Head of Quantitative Research

The paper investigates whether peer-to-peer crowdlending to businesses provides investors with returns consistent with the level of risk borne. By studying over 3000 loans mediated on 68 European platforms the authors show that returns are inversely related to riskiness, suggesting that, on average, crowdfunded loans are mispriced. These results on a new dataset illustrate the pervasiveness of the low-risk anomaly and are evidence against ‘p-hacking’ or ‘data mining’ concerns.

1Adhami, S., Gianfrate, G. and Johan, S., 2019, ‘Risks and Returns in Crowdlending’, working paper.

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