42 Pages Posted: 24 Jul 2010 Last revised: 20 Nov 2010
Date Written: 2010
The mismatch between credit ratings o fstructured finance transactions and their true risks has been a source of the Global Financial Crisis which manifested in criticism of models and techniques applied by credit rating agencies (CRA). This paper provides an empirical study which assesses the historical performance of credit ratings for structured finance transactions and finds that CRAs do not include all factors explaining securitization impairment risk. In addition, CRA ratings for selected asset categories underestimate risk in origination years when the fee revenue is high.
Keywords: Asset-backed Security, Collateralized Debt Obligation, Economic Downturn, Fee Revenue, Forecasting, Global Financial Crisis, Home Equity Loans, Impairment Rate, Mortgage-backed Security, Structured Finance Rating
JEL Classification: G20, G28, C51
Suggested Citation: Suggested Citation
Roesch, Daniel and Scheule, Harald (Harry), Rating Performance and Agency Incentives of Structured Finance Transactions (2010). Paolo Baffi Centre Research Paper No. 2010-78. Available at SSRN: https://ssrn.com/abstract=1646906 or http://dx.doi.org/10.2139/ssrn.1646906
By Jian Hu