The Private Use of Credit Ratings: Evidence from Investment Mandates

42 Pages Posted: 16 Jul 2018 Last revised: 14 Sep 2018

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)

Stefan Pitschner

Uppsala University

Date Written: June 22, 2018

Abstract

Investment mandates are a key contractual mechanism underlying delegated asset management. Mandates of fixed income funds frequently refer to credit ratings to circumscribe the investment opportunity set of fund managers. To determine whether there has been a change in the perceived value of ratings, we examine changes in the use of credit ratings in investment mandates contained in fund prospectuses. Overall, the use of credit ratings in fixed income mandates has not declined during the 1999 to 2017 period. Fixed income markets’ extensive and continued reliance on credit ratings points to a lack of practically useful alternatives.

Keywords: credit ratings, investment mandates, 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 22, 2018). 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

Stefan Pitschner

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

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