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

60 Pages Posted: 7 Jan 2019 Last revised: 7 Nov 2019

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: December 2018

Abstract

Credit ratings have been shown to be imperfect and sometimes biased measures of risk. Has this affected their use in unregulated settings? Using textual analysis, we measure the use of credit ratings in investment mandates of fixed income mutual funds, where ratings serve to limit investment in risky assets. We find that this use has steadily increased from high initial levels 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, delegated asset management, financial crisis, investment mandates

JEL Classification: G01, G23, G24

Suggested Citation

Baghai, Ramin and Becker, Bo and Pitschner, Stefan, The Private Use of Credit Ratings: Evidence from Mutual Fund Investment Mandates (December 2018). CEPR Discussion Paper No. DP13418. Available at SSRN: https://ssrn.com/abstract=3310343

Ramin Baghai (Contact Author)

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

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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