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Credit Ratings and Structured Finance

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  • UserJoel Shapiro is Associate Professor of Finance at Saïd Business School, University of Oxford World_link
  • ClockThursday 19 February 2015, 13:00-14:00
  • House10 Trumpington Street.

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The poor performance of credit ratings on structured …finance products has prompted investigation into the role of Credit Rating Agencies (CRAs) in designing and marketing these products. We analyze a two-period reputation model where a CRA both designs and rates securities that are sold to different clienteles: un-constrained investors and investors constrained by minimum quality requirements.When quality requirements for constrained investors are higher, rating infl‡ation increases. Rating infl‡ation decreases if the quality of the asset pool is higher. Securities for both types of investors may have in‡ated ratings. The motivation for pooling assets derives from tailoring to clienteles and from reputational incentives.

This talk is part of the Cambridge Finance Workshop Series series.

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