Cost of marketability and benefit of liquidity: evidence from peer‐to‐peer lending

We exploit the exogenous changes in the peer‐to‐peer lending market to quantify the discount applied to non‐ marketable securities. Specifically we show that the non‐marketability discount documented in the extant literature is inherently tied to the liquidity of the secondary market. We show that illiquid marketable assets suffer the same discount as non‐marketable assets and that the discount is lessened by improvements in secondary market liquidity. The analysis suggests policy implications for security platforms and secondary market creation in the wake of new regulations like Regulation Crowdfunding.