Abstract

http://ssrn.com/abstract=1909091
 
 

References (42)



 


 



Credit Ratings across Asset Classes: A Long-Term Perspective


Jess Cornaggia


Georgetown University

Kimberly Rodgers Cornaggia


American University - Kogod School of Business

John Hund


Rice University - Jesse H. Jones School of Management

May 28, 2015


Abstract:     
Regulators have historically relied on credit ratings to establish capital requirements, assuming that credit ratings mean the same thing for different asset classes. Defaults among Aaa-rated structured finance products during the recent financial crisis challenged this assumption. In response, the Dodd-Frank Act mandates standardization of ratings across security types. Our contribution to the literature is a comprehensive examination of the behavior of ratings across all major asset classes over the past 30 years. The divergent behavior of ratings across asset classes during the crisis was an extreme case, but not an isolated incident. We show that ratings exhibit persistent differences across asset classes, consistent with the fact that different asset types have fundamentally different risk profiles. We conclude that the Dodd-Frank mandate will prove difficult to enforce and instead advocate a regulatory framework that distinguishes risk across asset classes.

Number of Pages in PDF File: 52

Keywords: Credit Ratings, Municipal Bonds, Sovereign Credit Risk, Public Finance, Structured Finance, Regulatory Capital

JEL Classification: G14, G24, G28, G32


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Date posted: August 15, 2011 ; Last revised: June 1, 2015

Suggested Citation

Cornaggia, Jess and Cornaggia, Kimberly Rodgers and Hund, John, Credit Ratings across Asset Classes: A Long-Term Perspective (May 28, 2015). Available at SSRN: http://ssrn.com/abstract=1909091 or http://dx.doi.org/10.2139/ssrn.1909091

Contact Information

Jess Cornaggia
Georgetown University ( email )
3700 O Street, NW
Washington, DC 20057
United States
HOME PAGE: http://www.jesscornaggia.com
Kimberly Rodgers Cornaggia (Contact Author)
American University - Kogod School of Business ( email )
4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States
John Hund
Rice University - Jesse H. Jones School of Management ( email )
6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
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