Research on the Risk of the Online Lending Market in China: A New Perspective Based on MF-DCCA

This paper examines the risk in the online lending market by analyzing the cross-correlation between formal (Shibor) and informal lending markets (including online and offline lending markets) in China using the multifractal detrended cross-correlation analysis (MF-DCCA) approach by employing time series data of interest rates covering the period from July 20, 2015, to January 17, 2020. The results reveal cross-correlations between Shibor and offline lending markets and between the online and offline lending markets in both the short and long terms. In addition, the nonlinear Granger causality test showed significant bidirectional causality between Shibor and the offline lending interest rate, and offline lending was the cause of online lending. No obvious causality relationships were noted between Shibor and online lending. The cross-correlation analysis for markets supported further strengthening of regulations of online lending markets.

Automated summary

This study utilized the MF-DCCA approach to analyze the lending markets in China and discovered cross-correlations between different markets, highlighting the importance of further regulation on the online lending market.