The Private Use of Credit Ratings: Evidence from Investment Mandates

53 Pages Posted: 16 Jul 2018 Last revised: 21 Jun 2019

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); Swedish House of Finance

Bo Becker

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); ECGI

Stefan Pitschner

Uppsala University

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2019

Abstract

Investment mandates determine how more than $7tn of fixed income assets are managed by mutual funds in the US. Using textual analysis, we measure the use of credit ratings in fixed income mutual fund investment mandates. The use of ratings to classify which securities funds may invest in has increased, from a high initial level, over the past two decades. Fixed income markets’ extensive and continued reliance on credit ratings either points to a lack of practically useful alternatives, a positive view of ratings by market participants, or inefficient contracting.

Keywords: Credit ratings, investment mandates, delegated asset management, financial crisis

JEL Classification: G24, G23, G01

Suggested Citation

Baghai, Ramin and Becker, Bo and Pitschner, Stefan, The Private Use of Credit Ratings: Evidence from Investment Mandates (June 20, 2019). Swedish House of Finance Research Paper No. 18-13. Available at SSRN: https://ssrn.com/abstract=3201006 or http://dx.doi.org/10.2139/ssrn.3201006

Ramin Baghai

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Bo Becker (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Dept. of Finance
111 60 Stockholm, 11160
Sweden

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ECGI ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Stefan Pitschner

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

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