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Thomas Fischer . Foto

Thomas Fischer

Docent

Thomas Fischer . Foto

Market Structure and Rating Strategies in Credit Rating Markets : A Dynamic Model with Matching of Heterogeneous Bond Issuers and Rating Agencies

Författare

  • Thomas Fischer

Summary, in English

This paper investigates the impact of rating agencies in a market with asymmetric information. In particular, the role of credit rating agencies as an intermediary between investors and bond issuers is discussed. We model this setting in a dynamic framework in which both rating agencies and bond issuers are of heterogeneous quality. Rating agencies can apply costly research technology to reveal the fundamental nature of bond issuers and engage in rating smoothing. We show that rating smoothing can compensate for low research quality, even though it is accompanied by a quality deterioration in the rating market and market clustering. Moreover, low-quality bond issuers have a general tendency to match with low-quality rating agencies. If investors place a strong emphasis on the reputation of rating agencies, rating markets also tend to be strongly clustered.

Publiceringsår

2015

Språk

Engelska

Sidor

39-56

Publikation/Tidskrift/Serie

Journal of Banking & Finance

Volym

58

Dokumenttyp

Artikel i tidskrift

Förlag

Elsevier

Ämne

  • Business Administration

Nyckelord

  • rating agencies
  • rating smoothing
  • market structure
  • G24
  • D83
  • C63
  • L11
  • L14

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 1872-6372