Saturday, October 22, 2011

Inquiries vs. Returns

Just over a year ago Ken from made a graph showing Returns vs. Credit grade (among other interesting graphs.) I found this fascinating and since I read it I have started investing in listings with only small numbers of inquiries.

I wanted to see if this trend is continuing so, using lendstats' complete performance breakdown I put together the following graphs for both Prosper and Lending Club:

To me it looks like, in general, the trend is holding true. Loans with more inquiries appear to have a lower ROI than loans with fewer inquiries. There may be some bobbling at 5+ inquiries but there seems to be much more variation. Indeed, looking at these four graphs the deviation for the 0-inquiry loans is always the smallest and, as we move to more inquiries, the deviation seems to get larger and larger.

It's also nice to see, in Lending Club loans, how the 0-inquiry loans appear to gain a 1%-2% ROI each year that passes for the past 4 years. Looking at the spread between all loans and D's and below, it looks like much of that gain has come from the lower-rated loans.

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