Do Multiple Credit Ratings Signal Complexity ? Evidence from the European Triple-A Structured Finance Securities

Frank J. Fabozzi, Mike E. Nawas, Dennis Vink: In much of the current research on market practices with respect to the use of credit ratings, the rating shopping hypothesis and the information production hypothesis feature prominently.

Author(s):

Frank J. Fabozzi

EDHEC-Risk Institute

Mike E. Nawas

Bishopsfield Capital Partners

Dennis Vink

Nyenrode Business Universiteit

Both of these hypotheses predict an inverse relationship between the number of ratings and a security’s funding cost; that is, more ratings will reduce funding costs and, conversely, fewer ratings will increase funding costs. Our study finds precisely the opposite to have been the case for the mainstay of the structured finance securities market in Europe prior to 2007, namely the triple-A tranches of European residential mortgage-backed securities. Our findings suggest that structured finance markets may behave differently than what would be predicted by two hypotheses traditionally used to explain the number of ratings and funding costs: the rating shopping and information production hypotheses. Obtaining multiple credit ratings may be a signal for complexity, for which investors demand a risk premium.
Pdf
Do Multiple Credit Ratings Signal Complexity ? Evidence from the European Triple...
(-1.00 B)
Type: Working paper
Date: le 03/03/2014
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

See Also

EDHEC-Risk and Swiss Life AM France set up a research chair to analyse the role of real estate in investment solutions
News
- 17-10-2018
Swiss Life Asset Managers France and EDHEC-Risk Institute have announced the creation...
Lionel Martellini speaking on the application of goal-based investing to retirement strategies at the TrackInsight European Summit in Paris on Nov 7
News
- 16-10-2018
Lionel Martellini, Professor of Finance, EDHEC Business School and Director, EDHEC-Risk...
The EDHEC Executive MBA rises six places in the Financial Times global ranking 2018
News
- 15-10-2018
The Financial Times published today its latest ranking of top Executive MBA programmes...
News
- 11-10-2018
The EDHEC Family Business Centre and Tharawat Family Business Forum, with the...