Do Chinese Investors Display Herding Behavior in Chinese Microloan Market?

Abstract

This study empirically investigates herding behavior in Chinese online P2P lending market. Due to the asymmetric information, theoretically, lenders will have the tendency to imitate others’ behavior when they plan to invest in this P2P online new market. This tendency called herding. A large sample of data has been collected from PPdai.com, one of the largest microloan markets in China. Using Chinese unique credit scoring mechanism, it is found that herding behavior exists in Chinese microloan online market as the subsequent investors are affected by previous high-score persons.