Peer Effects in Credit Ratings
Jingzhi Huang,
Yao Luo,
Ruoyu Shao and
Haiqing Xu ()
Working Papers from University of Toronto, Department of Economics
Abstract:
The recent financial crisis has brought renewed attention to the failure of the credit rating mechanism and the strategic nature of credit ratings. In this paper, we conduct a structural analysis of strategic credit rating behavior in the Commercial Mortgage-Backed Security (CMBS) market, using a model of CMBS credit ratings where every rating agency's ratings reflect peer effects from other rating agencies. We establish semiparametric identification of the model by exploiting an exogenous equilibrium shift due to the financial crisis and incorporate the peer effects through the estimation of market "beliefs" on the ratings. Our estimation of the model using Bloomberg data on CMBS deals suggests that there is strong evidence of positive peer effects in ratings. We also find that including peer effects improves the fitness of our model of credit ratings.
Keywords: Credit rating agencies; Commercial Mortgage-Backed Security (CMBS); Peer effects; Reflection problem; Multiple equilibria (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2016-11-18
References: Add references at CitEc
Citations:
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-569
Access Statistics for this paper
More papers in Working Papers from University of Toronto, Department of Economics 150 St. George Street, Toronto, Ontario.
Bibliographic data for series maintained by RePEc Maintainer ().