The Private Use of Credit Ratings: Evidence from Mutual Fund Investment Mandates

The Private Use of Credit Ratings: Evidence from Mutual Fund Investment Mandates

Ramin Baghai, Bo Becker, Stefan Pitschner

Series number :

Serial Number: 
612/2019

Date posted :

July 10 2019

Last revised :

April 24 2020
SSRN Share

Keywords

  • Credit ratings • 
  • investment mandates • 
  • delegated asset management • 
  • financial crisis

The global financial crisis demonstrated that credit ratings are flawed measures of credit risk. Has this affected their use outside the sphere of public regulations? We measure the use of credit ratings in fixed income mutual funds using textual analysis of investment mandates, where ratings are widely employed to restrict managers’ investment sets.

Over the past two decades, the use of ratings has steadily increased, from high initial levels. These results reveal how difficult it is to replace credit ratings in the context of delegated asset management. This implies that credit ratings are likely to remain central to financial markets.

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Authors

Real name:
Stefan Pitschner