Credit Ratings and Security Prices in the Subprime MBS Market

Posted: 3 Jun 2011

See all articles by Adam B. Ashcraft

Adam B. Ashcraft

Federal Reserve Bank of New York

Paul S. Goldsmith-Pinkham

Yale School of Management

Peter Hull

Federal Reserve Banks - Federal Reserve Bank of New York

James I. Vickery

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

Ashcraft, Adam B. and Goldsmith-Pinkham, Paul S. and Hull, Peter and Vickery, James Ian, 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

Adam B. Ashcraft

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045-0001
United States
212-720-1617 (Phone)
212-720-8363 (Fax)

Paul S. Goldsmith-Pinkham

Yale School of Management ( email )

NY
United States

HOME PAGE: http://paulgp.github.io

Peter Hull

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

James Ian Vickery (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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