Rating model arbitrage in CDO markets: An empirical analysis

Item Type Journal paper
Abstract We analyze whether information asymmetry between issuers and investors leads to rating model arbitrage in Collateralized Debt Obligation markets. Rating model arbitrage is defined as the issuer''s deliberate capitalization of information asymmetry at the investor''s cost on the basis of different rating processes. Using data from CDO transactions grouped by both rating agencies and underlying rating methodologies, we test for homogeneity of characteristic transaction features within the group and heterogeneity between the different groups. We find that the hypothesis stating non-existence of rating model arbitrage on the basis of information asymmetry does not hold as individual patterns of transaction characteristics within each group could be identified.
Authors Morkötter, Stefan & Westerfeld, Simone
Journal or Publication Title International Review of Financial Analysis
Language English
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date March 2009
Publisher Elsevier
Place of Publication Amsterdam [u.a.]
Volume 18
Number 1/2
Page Range 21-33
Number of Pages 13
ISSN 1057-5219
ISSN-Digital 1873-8079
Publisher DOI https://doi.org/10.1016/j.irfa.2009.01.002
Depositing User Prof. Dr. Simone Westerfeld
Date Deposited 02 Mar 2009 10:48
Last Modified 16 Dec 2022 01:20
URI: https://www.alexandria.unisg.ch/publications/51930


Full text not available from this repository.


Morkötter, Stefan & Westerfeld, Simone (2009) Rating model arbitrage in CDO markets: An empirical analysis. International Review of Financial Analysis, 18 (1/2). 21-33. ISSN 1057-5219


Edit item Edit item