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Title: Divergence in credit ratings
Authors: Rablen, MD
Keywords: Reputation;Spillovers;Divergence;Rating agencies
Issue Date: 2013
Publisher: Elsevier
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.
ISSN: 1544-6123
Appears in Collections:Dept of Economics and Finance Research Papers

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