Abstract

http://ssrn.com/abstract=2079811
 
 

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What Went Wrong? Examining Moody’s Rated CDO Data


Yaw Owusu-Ansah


Columbia University

December 1, 2013


Abstract:     
The downgrading of the tranches of Collateralized Debt Obligation (CDO) products backed by real estate related assets has caused severe disruptions in the housing and financial markets. The rating agencies have been criticized for the opacity in the rating process of the CDO products and also for giving the CDO tranches higher ratings than they deserved. However, not enough attention has been paid to the decision making process of the agencies to downgrade the CDO tranches. We use data from Moody’s CDO database to reconstruct the process through which Moody’s eventually downgraded the tranches. We use a discrete hazard rate model to study the variables that were relevant in the downgrading of the tranches of the CDOs. The empirical results show that out of the many CDO specific variables relevant to their ratings made available by Moody’s few have any explanatory power beyond the Moody’s Deal Scores (MDS). We show that the MDS could be explained by the changes in the Case-Shiller Composite-20 Index and Markit ABX.HE indices. Further analysis shows that Moody’s mostly relied on the changes in the Case-Shiller indexes in revising the MDS.

Number of Pages in PDF File: 49

Keywords: Housing Crises, Credit Ratings, Downgrades, CDOs, Hazard Rate Model

JEL Classification: G01, G24, C33, C35

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Date posted: June 9, 2012 ; Last revised: June 11, 2014

Suggested Citation

Owusu-Ansah, Yaw, What Went Wrong? Examining Moody’s Rated CDO Data (December 1, 2013). Available at SSRN: http://ssrn.com/abstract=2079811 or http://dx.doi.org/10.2139/ssrn.2079811

Contact Information

Yaw Owusu-Ansah (Contact Author)
Columbia University ( email )
3022 Broadway
New York, NY 10027
United States
HOME PAGE: http://www.columbia.edu/~yao2103
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