A Study On Individual Investors’ Herding Behavior

With the current rapid growth of internet credit lending,controlling credit risk and protecting investors’ returns has become a critical issue.At the same time,in today’s times of fast development of financial technology,individual investors,an important part of China’s capital market,have widely shifted from offline investment to online mobile investment.In this context,it becomes possible to study in greater depth the investment behaviour of individual investors and to provide them with financial protection.Starting from this breakthrough point,based on data related to the primary and secondary markets of PPDai.com,a typical platform in China’s P2 P online lending market,this study first validates the behavioural characteristics of individual investors in this market-herding behaviour-and explores whether it is actually rational.The paper then divides all investors into two categories,namely advanced investors and ordinary investors,according to their bidding patterns,and identifies leading investors who can significantly influence the investment behaviour of others in this market.Finally,the paper further explores the impact of leading investors on the market’s trading outcome-the proportion of claims discounted in the secondary market of PPDai.com-and its internal differences.Based on the empirical results,the paper finds that there is a herding effect among investors in the P2 P online lending market in Insurance Bids,Previously-overdue Bids and Overdue Bids,while there is no herding effect among investors in Non-overdue Bids.Further,the herding behaviour in Insurance Bids,Previously-overdue Bids and Overdue Bids is found to be based on information discovery.As the proportion of advanced investors in the order increases in real time,the time interval between bids from adjacent investors will be shorter in Insurance Bids,Non-overdue Bids,Previously-overdue Bids and Overdue Bids.Therefore,this study argues that advanced investors have a significant contribution to ordinary investors in making investment decisions,which means that advanced investors can be regarded as leading investors in the P2 P online lending market.In addition,this study demonstrates that the probability of order default and the duration of order default both increase with the proportion of advanced investors in the order,this means that advanced investors,as leading investors,do not use more information to identify the default risk of an order and instead make worse investment decisions compared to ordinary investors.Finally,the results of this study show that only in Insurance Bids leading investors have a positive influence on the trading outcome of the order,and the value of the order will be somewhat protected.The larger the proportion of leading investors in Non-overdue Bids,Previously-overdue Bids and Overdue Bids,the larger the proportion of discounted orders will be,which means that leading investors will have a negative impact on the trading outcome of orders instead.The results of this study are important for understanding the characteristics of individual investors’ investment behaviour in the Internet context,as well as the product development of financial institutions,the setting of rules in financial markets and the risk control of regulators.