The Private Use of Credit Ratings: Evidence from Mutual Fund Investment Mandates
79 Pages Posted: 16 Jul 2018 Last revised: 23 Apr 2020
Date Written: April 15, 2020
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: Suggested Citation