About this Event
Abstract:
Abstract: Although online lending enjoyed explosive growth in the past decade, its market size remains small compared to other financial assets. The risk of losing money, stringent government regulations, and low awareness of the benefits of online loans have hampered the realization of the full potential of the online lending market. Because online loans are an emerging asset class, investors may not be aware of the investment performance of online loans compared to other assets, and it remains an open question whether online loans offer sufficiently attractive returns to warrant inclusion in an asset allocation decision. To attract lenders, platforms must provide an appealing investment opportunity which entails construction of portfolios of loans that investors find attractive. We propose general characteristics-based portfolio policies (GCPP), a novel framework to overcome the difficulties associated with portfolio construction of loans. GCPP directly models the portfolio weight of a loan as a flexible function of its characteristics and does not require direct estimation of the distributional properties of loans. Using an extensive dataset spanning over one million loans from 2013 to 2020 from LendingClub, we show that GCPP portfolios can achieve an average internal rate of return (IRR) of 8.86% to 13.08%, significantly outperforming a naïve equal-weight portfolio of loans. We then address the question of whether online loans can earn competitive rates of return compared to traditional investment vehicles through six market indices covering stocks, bonds, and real estate. The results demonstrate that a portfolio of online loans earn competitive or higher rates of return compared to traditional asset classes. Furthermore, the IRRs of the loan portfolios have small correlations with the benchmark index IRRs, pointing toward significant diversification benefits. Together, we demonstrate that GCPP is an approach that can help platforms better serve both borrowers and lenders en route to growing their business.
Bio:
Ram D. Gopal is the Information Systems Society’s Distinguished Fellow, a Professor of Information Systems and Management, and Pro-Dean for Research, Engagement, and Impact at the Warwick Business School. He also serves as the Academic Director of the Gillmore Centre for Financial Technology at the Warwick Business School. He has a diverse and a rich portfolio of research that spans big data analytics, health informatics, financial technologies, information security, privacy and valuation, intellectual property rights, online market design and business impacts of technology. His research has appeared in Management Science, Management Information Systems Quarterly, Operations Research, INFORMS Journal on Computing, Information Systems Research, Journal of Business, Journal of Law and Economics, British Medical Journal, Communications of the ACM, IEEE Transactions on Knowledge and Data Engineering, Journal of Management Information Systems, Decision Support Systems, and other journals and conference proceedings. He has served on the editorial boards of Information Systems Research, Decision Sciences, Journal of Database Management, Information Systems Frontiers, and Journal of Management Sciences, and has served as the President of the Workshop on Information Technologies and Systems organization from 2016 to 2018.
For further details, please see https://www.wbs.ac.uk/about/person/ram-gopal
Event Venue & Nearby Stays
Jubilee Building, Room G32 & Online, University of Sussex Business School, University of Sussex, Brighton, United Kingdom
GBP 0.00