Credit Ratings and Security Prices in the Subprime MBS Market
- (pp. 115-19)
Abstract
We present and discuss preliminary evidence suggesting that credit ratings significantly influenced prices for subprime mortgage-backed securities issued in the period leading up to the recent financial crisis. Ratings are closely correlated with prices even controlling for a rich set of security- and loan-level controls. This incremental variation in ratings has much less predictive power for security defaults, however, based on findings to date from our ongoing research, suggesting prices were excessively sensitive to ratings relative to their informational content.Citation
Ashcraft, Adam, Paul Goldsmith-Pinkham, Peter Hull, and James Vickery. 2011. "Credit Ratings and Security Prices in the Subprime MBS Market." American Economic Review, 101 (3): 115-19. DOI: 10.1257/aer.101.3.115JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief
- G21 Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies