Complex Securities and Underwriter Reputation: Do Reputable Underwriters Produce Better Securities?
John M. Griffin
University of Texas at Austin - Department of Finance
University of Texas-Austin
University of Texas at Dallas - School of Management - Department of Finance & Managerial Economics
February 28, 2014
Conventional wisdom suggests that high-reputation banks will generally produce good securities to maintain their long-run reputation. We show with a simple model that when securities are complex a high-reputation bank may produce assets that underperform during market downturns. We examine this possibility using a unique sample of 10.1 trillion dollars of CLO, MBS, ABS, and CDOs. Contrary to the conventional view, securities issued by more reputable banks did not outperform but, rather, had higher proportions of capital in default.
Number of Pages in PDF File: 111
Keywords: complex securities, reputation, CDO, ABS, MBS, CLO
Date posted: July 1, 2012 ; Last revised: March 1, 2014