Title of article
Ratingsshoppingandassetcomplexity:Atheoryof ratingsinflation
Author/Authors
Vasiliki Skreta، نويسنده , , LauraVeldkamp، نويسنده ,
Issue Information
روزنامه با شماره پیاپی سال 2008
Pages
18
From page
678
To page
695
Abstract
Manyidentifyinflatedcreditratingsasonecontributortotherecentfinancial-market
turmoil.Wedevelopanequilibriummodelofthemarketforratingsanduseitto
examinepossibleoriginsofandcuresforratingsinflation.Inthemodel,assetissuers
can shopforratings—observe multipleratingsanddiscloseonlythemostfavorable—
before auctioningtheirassets.Whenassetsaresimple,agencies’ratingsaresimilarand
theincentivetoratingsshopislow.Whenassetsaresufficientlycomplex,ratingsdiffer
enoughthatanincentivetoshopemerges.Thus,anincreaseinthecomplexityof
recently issuedsecuritiescouldcreateasystematicbiasindisclosedratings,despitethe
fact thateachratingsagencyproducesanunbiasedestimateoftheasset’struequality.
Increasing competitionamongagencieswouldonlyworsenthisproblem.Switchingto
an investor-initiatedratingssystemalleviatesthebias,butcouldcollapsethemarketfor
information.
Keywords
Rating agenciesInformation acquisitionDisclosure
Journal title
Journal of Monetary Economics
Serial Year
2008
Journal title
Journal of Monetary Economics
Record number
846323
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