American Economic Review Vol. 101 No. 3 2011

Credit Ratings and Security Prices in the Subprime MBS Market

Adam Ashcraft¹; Paul Goldsmith-Pinkham²; Peter Hull¹; James Vickery¹

¹ Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045. · ² Department of Economics, Harvard University, 1805 Cambridge Street, Cambridge, MA 02138.

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.

DOI

10.1257/aer.101.3.115

Volume

101

Issue

3

Pages

115-119

Language

en

Sources

crossref bibtex:phds-export.bib openalex

Cite

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