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Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed Securities

Author

Listed:
  • He, Jie

    (University of GA)

  • Qian, Jun

    (Boston College)

  • Strahan, Philip E.

    (Boston College)

Abstract

Initial yields on both AAA-rated and non-AAA rated mortgage-backed security (MBS) tranches sold by large issuers are higher than yields on similar tranches sold by small issuers during the market boom years of 2004-2006. Moreover, the prices of MBS sold by large issuers drop more than those sold by small issuers, and the differences are concentrated among tranches issued during 2004-2006. These patterns suggest that investors priced the risk that large issuers received more inflated ratings than small issuers, especially during booming periods.

Suggested Citation

  • He, Jie & Qian, Jun & Strahan, Philip E., 2011. "Are All Ratings Created Equal? The Impact of Issuer Size on the Pricing of Mortgage-Backed Securities," Working Papers 11-61, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:11-61
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    File URL: http://fic.wharton.upenn.edu/fic/papers/11/11-61.pdf
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    References listed on IDEAS

    as
    1. Bar-Isaac, Heski & Shapiro, Joel, 2013. "Ratings quality over the business cycle," Journal of Financial Economics, Elsevier, vol. 108(1), pages 62-78.
    2. Adam B. Ashcraft & Paul Goldsmith-Pinkham & James Vickery, 2010. "MBS ratings and the mortgage credit boom," Staff Reports 449, Federal Reserve Bank of New York.
    3. Acharya, Viral V. & Schnabl, Philipp & Suarez, Gustavo, 2013. "Securitization without risk transfer," Journal of Financial Economics, Elsevier, vol. 107(3), pages 515-536.
    4. William P. Alexander & Scott D. Grimshaw & Grant R. McQueen & Barrett A. Slade, 2002. "Some Loans Are More Equal than Others: Third–Party Originations and Defaults in the Subprime Mortgage Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(4), pages 667-697.
    5. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
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    Cited by:

    1. Theurl, Theresia & Schaetzle, Dominik, 2011. "Ratingagenturen in der Kritik: Eine Analyse der Reformforderungen und -vorschläge," Arbeitspapiere 116, University of Münster, Institute for Cooperatives.

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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