Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Wednesday, July 2, 2014

Jiang, Wang & Wang on the Ratings of MBS and ABS

John (Xuefeng) Jiang, Isabel Yanyan Wang, and Kailong (Philip) Wang have posted Former Rating Analysts and the Ratings of MBS and ABS: Evidence from LinkedIn on SSRN with the following abstract:

Using self-posted profiles on LinkedIn, we identify 391 rating analysts who previously work in the structured finance divisions of Moody’s, S&P or Fitch but later join issuers of mortgage-backed securities (MBS) and asset-backed securities (ABS) from 1997 to 2007. We find that MBS and ABS issued by firms that employ more former rating analysts suffer larger downgrades subsequently, implying that these former analysts help issuers inflate the initial ratings. Further analyses suggest former analysts influence ratings through their specialized knowledge in structured finance. We also find investors in AAA rated securities do not price the risk of rating inflation induced by former analysts.

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