Credit Ratings across Asset Classes
Kimberly Rodgers Cornaggia
American University - Kogod School of Business
Rice University - Jesse H. Jones School of Management
June 14, 2014
We employ comprehensive credit rating histories and an array of traditional and novel metrics to compare the quality (migration and accuracy) of ratings across asset classes. We are first to quantify differences in ratings quality (a) of municipal and sovereign debt, relative to corporate bonds (b) across structured product types, and (c) across a 30-year time series. Overall, our results indicate not only that ratings quality differs across asset classes, but that asset classes have fundamentally different underlying risk profiles. We conclude that the Dodd-Frank mandate to standardize ratings will prove difficult to enforce and that the Basel II risk-weighting scheme does not adequately distinguish credit risk across asset classes.
Number of Pages in PDF File: 51
Keywords: Credit Ratings, Municipal Bonds, Sovereign Credit Risk, Public Finance, Structured Finance, Regulatory Capital
JEL Classification: G14, G24, G28, G32
Date posted: August 15, 2011 ; Last revised: June 15, 2014
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