Complex Securities and Underwriter Reputation: Do Reputable Underwriters Produce Better Securities?

John Griffin, Richard Lowery and Alessio Saretto

The Review of Financial Studies, 2014, vol. 27, issue 10, 2872-2925

Abstract: Conventional wisdom suggests that high-reputation banks will generally produce good securities to maintain their long-run reputation. We show with a simple model that, when securities are complex a high-reputation bank may produce assets that underperform during market downturns. We examine this possibility using a unique sample of $10.1 trillion of CLO, MBS, ABS, and CDOs. Contrary to the conventional view, securities issued by more reputable banks did not outperform but, rather, had higher proportions of capital in default.

Date: 2014
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