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Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed SecuritiesJie HeUniversity of Georgia - Department of Banking and Finance Jun QianBoston College - Finance Department; University of Pennsylvania - Wharton Financial Institutions Center; China Academy of Financial Research (CAFR) Philip E. StrahanBoston College - Department of Finance; National Bureau of Economic Research (NBER) January 20, 2012 Journal of Finance, Vol. 67, No. 6, pp. 2097-2137, December 2012. Abstract: Initial yields on both AAA-rated and non-AAA rated mortgage-backed security (MBS) tranches sold by large issuers are higher than yields on similar tranches sold by small issuers during the market boom years of 2004-2006. Moreover, the prices of MBS sold by large issuers drop more than those sold by small issuers, and the differences are concentrated among tranches issued during 2004-2006. These patterns suggest that investors priced the risk that large issuers received more inflated ratings than small issuers, especially during booming periods.
Number of Pages in PDF File: 53 Keywords: Credit ratings, mortgage-backed securities, tranche, conflict of interest, yield JEL Classification: G2, G1, L1 Accepted Paper SeriesDate posted: November 25, 2009 ; Last revised: November 27, 2012Suggested CitationContact Information
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