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Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed Securities

53 Pages Posted: 25 Nov 2009 Last revised: 27 Nov 2012

Jie He

University of Georgia - Department of Finance

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 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.

Keywords: Credit ratings, mortgage-backed securities, tranche, conflict of interest, yield

JEL Classification: G2, G1, L1

Suggested Citation

He, Jie and Qian, Jun and Strahan, Philip E., Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed Securities (January 20, 2012). Journal of Finance, Vol. 67, No. 6, pp. 2097-2137, December 2012.. Available at SSRN: https://ssrn.com/abstract=1512732 or http://dx.doi.org/10.2139/ssrn.1512732

Jie He

University of Georgia - Department of Finance ( email )

B318 Amos Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-62934520 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.saif.sjtu.edu.cn/en/professors/2101

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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