Cambridge Finance Workshop Series are usually held on Thursdays during term time. The workshops are an opportunity for those working in finance to present their latest results or papers.
Joel Shapiro is Associate Professor of Finance at Saïd Business School, University of Oxford. His main area of expertise is the regulation and governance of financial institutions. He has conducted research on Credit Rating Agencies, executive compensation, LIBOR, and conflicts of interest in retail finance.
Joel will present “Credit Ratings and Structured Finance”.
The poor performance of credit ratings on structured finance products has prompted investigation into the role of Credit Rating Agencies (CRAs) in designing and marketing these products. We analyze a two-period reputation model where a CRA both designs and rates securities that are sold to different clienteles: un-constrained investors and investors constrained by minimum quality requirements.When quality requirements for constrained investors are higher, rating inflation increases. Rating inflation decreases if the quality of the asset pool is higher. Securities for both types of investors may have inated ratings. The motivation for pooling assets derives from tailoring to clienteles and from reputational incentives.