Credit Ratings Across Asset Classes: A Long-Term Perspective

Journal article

Jess N. Cornaggia, Kimberly J. Cornaggia, John E. Hund
Review of Finance, vol. 21(2), 2017 Jan 28, pp. 465-509 (lead article)

DOI: 10.1093/rof/rfx002

Cite

APA Click to copy
Cornaggia, J. N., Cornaggia, K. J., & Hund, J. E. (2017). Credit Ratings Across Asset Classes: A Long-Term Perspective. Review of Finance, 21(2), 465–509 (lead article). https://doi.org/10.1093/rof/rfx002

Chicago/Turabian Click to copy
Cornaggia, Jess N., Kimberly J. Cornaggia, and John E. Hund. “Credit Ratings Across Asset Classes: A Long-Term Perspective.” Review of Finance 21, no. 2 (January 28, 2017): 465–509 (lead article).

MLA Click to copy
Cornaggia, Jess N., et al. “Credit Ratings Across Asset Classes: A Long-Term Perspective.” Review of Finance, vol. 21, no. 2, Jan. 2017, pp. 465–509 (lead article), doi:10.1093/rof/rfx002.

BibTeX Click to copy

@article{jess2017a,
  title = {Credit Ratings Across Asset Classes: A Long-Term Perspective},
  year = {2017},
  month = jan,
  day = {28},
  issue = {2},
  journal = {Review of Finance},
  pages = {465-509 (lead article)},
  volume = {21},
  doi = {10.1093/rof/rfx002},
  author = {Cornaggia, Jess N. and Cornaggia, Kimberly J. and Hund, John E.},
  month_numeric = {1}
}

Link to Review of Finance version (ungated, lead article) here.

Blog post by Alex Edmans (editor of Review of Finance here).

Abstract
We test whether ratings are comparable across asset classes. We examine default rates by initial rating, accuracy ratios, migration metrics, instantaneous upgrade and downgrade intensities, and rating changes over bonds’ lives in multivariate regressions. These approaches reveal substantial and persistent differences across broad asset classes, as well as across subcategories of structured finance products. Our results are best explained by variation in rating agency incentives and variation in underlying risk profiles. We conclude that regulations requiring ratings to perform comparably across asset classes will prove difficult to enforce. We advocate instead a regulatory framework that better distinguishes risks and incentives across asset classes.