Journal article
Credit ratings and structured finance
- Abstract:
- The poor performance of credit ratings of structured finance products in the financial crisis has prompted investigation into the role of credit rating agencies (CRAs) in designing and marketing these products. We analyze a two-period reputation model in which a CRA both designs and rates securities that are sold both to investors who are constrained to purchase highly rated securities and investors who are unconstrained. Assets are pooled and senior and junior tranches are issued with a waterfall structure. When the rating constraint is lax, the CRA will include only risky assets in the securitization pool, serving both types of investors without any rating inflation. Rating inflation is decreasing in the tightness of the rating constraint locally. But rating inflation may be non-monotonic in the rating constraint globally, with no rating inflation when the constraint is lax or tight.
- Publication status:
- Published
- Peer review status:
- Peer reviewed
Actions
Access Document
- Files:
-
-
(Preview, Accepted manuscript, pdf, 292.7KB, Terms of use)
-
- Publisher copy:
- 10.1016/j.jfi.2019.03.003
Authors
- Publisher:
- Elsevier
- Journal:
- Journal of Financial Intermediation More from this journal
- Volume:
- 41
- Article number:
- 100816
- Publication date:
- 2019-04-17
- Acceptance date:
- 2019-03-23
- DOI:
- ISSN:
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1042-9573
- Language:
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English
- Keywords:
- Pubs id:
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pubs:984215
- UUID:
-
uuid:62646ff3-a237-42c4-a53e-19990fa00bf0
- Local pid:
-
pubs:984215
- Source identifiers:
-
984215
- Deposit date:
-
2019-03-25
Terms of use
- Copyright holder:
- Elsevier Inc.
- Copyright date:
- 2019
- Rights statement:
- © 2019 Elsevier Inc.
- Notes:
- This is the accepted manuscript version of the article. The final version is available online from Elsevier at: https://doi.org/10.1016/j.jfi.2019.03.003
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