Does the market understand rating shopping? Predicting MBS losses with initial yields

• Autores: Jie (Jack) He, Jun (Q.J.) Qian, Philip E. Strahan
• Localización: Review of Financial Studies, ISSN-e 1465-7368, Vol. 29, Nº. 2, 2016, págs. 457-485
• Idioma: inglés
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• Resumen

  • We study rating shopping on the MBS market. Outside of AAA, losses are higher on single-rated tranches than on multi-rated ones, and yields predict future losses for single-rated tranches, but not for multi-rated ones. Conversely, ratings have less explanatory power for single-rated tranches. These results suggest that single-rated tranches have been “shopped,” whereby pessimistic ratings never reach the market. For AAA-rated MBS, by contrast, 93% receive two or three such ratings, and those ratings agree 97% of the time. This ratings convergence suggests that agencies “cater” to investors, who cannot purchase a tranche unless it has multiple AAA ratings.