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Credit Ratings and Security Prices in the Subprime MBS Market

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  • Adam Ashcraft
  • Paul Goldsmith-Pinkham
  • Peter Hull
  • James Vickery

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.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.115
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 3 (May)
Pages: 115-19

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:3:p:115-19

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  1. Ashcraft, A. & Goldsmith-Pinkham, P. & Vickery, J., 2010. "MBS Ratings and the Mortgage Credit Boom," Discussion Paper 2010-89S, Tilburg University, Center for Economic Research.
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Cited by:
  1. Tobias Adrian & Adam B. Ashcraft, 2012. "Shadow Banking Regulation," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 99-140, October.
  2. Opp, Christian C. & Opp, Marcus M. & Harris, Milton, 2013. "Rating agencies in the face of regulation," Journal of Financial Economics, Elsevier, vol. 108(1), pages 46-61.

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