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|Title:||Divergence in credit ratings|
|Citation:||Finance Research Letters, 10:1, pp. 12 - 16, 2013|
|Abstract:||During the recent credit crisis credit rating agencies (CRAs) became increas- ingly lax in their rating of structured products, yet increasingly stringent in their rating of corporate bonds. We examine a model in which a CRA operates in both the market for structured products and for corporate debt, and shares a common reputation across the two markets. We find that, as a CRA s reputation becomes good enough, it can be optimal for it to infl ate its ratings with probability one in the structured products market, but in flate its ratings with a probability zero in the corporate bond market.|
|Appears in Collections:||Dept of Economics and Finance Research Papers|
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