The Private Use of Credit Ratings: Evidence from Mutual Fund Investment Mandates

79 Pages Posted: 16 Jul 2018 Last revised: 23 Apr 2020

See all articles by Ramin Baghai

Ramin Baghai

Stockholm School of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); 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: April 15, 2020

Abstract

The global financial crisis demonstrated that credit ratings are flawed measures of credit risk. Has this affected their use outside the sphere of public regulations? We measure the use of credit ratings in fixed income mutual funds using textual analysis of investment mandates, where ratings are widely employed to restrict managers’ investment sets. Over the past two decades, the use of ratings has steadily increased, from high initial levels. These results reveal how difficult it is to replace credit ratings in the context of delegated asset management. This implies that credit ratings are likely to remain central to financial markets.

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 Mutual Fund Investment Mandates (April 15, 2020). 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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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 the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Stefan Pitschner

Uppsala University ( email )

Box 513
Uppsala, 751 20
Sweden

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