Credit Ratings and Security Prices in the Subprime MBS Market
Posted: 3 Jun 2011
Federal Reserve Bank of New York
Federal Reserve Bank of New York
Federal Reserve Banks - Federal Reserve Bank of New York
Federal Reserve Bank of New York
Date Written: June 1, 2011
Abstract
We present and discuss preliminary evidence suggesting that credit ratings significantly influenced prices for subprime mortgage-backed securities issued in the period leading up to the recent financial crisis. Ratings are closely correlated with prices even controlling for a rich set of security- and loan-level controls. This incremental variation in ratings has much less predictive power for security defaults, however, based on findings to date from our ongoing research, suggesting prices were excessively sensitive to ratings relative to their informational content.
Keywords: credit ratings, mortgage-backed securities
JEL Classification: G01, G21, G24
Suggested Citation:
Suggested Citation
Ashcraft, Adam B. and Goldsmith-Pinkham, Paul S. and Hull, Peter and Vickery, James I., Credit Ratings and Security Prices in the Subprime MBS Market (June 1, 2011). American Economic Review, Vol. 101, No. 3, pp. 115-119, 2011. Available at SSRN: https://ssrn.com/abstract=1856823
