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Simone Westerfeld
Title
Prof. Dr.
Last Name
Westerfeld
First name
Simone
Email
simone.westerfeld@unisg.ch
Now showing
1 - 10 of 27
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PublicationCompetition in the Credit Rating Industry: Benefits for Investors and IssuersWe empirically investigate the benefits of multiple ratings not only at issuance of debt instruments but also during the subsequent monitoring phase. Using a record of monthly credit rating migration data on all U.S. residential mortgage-backed securities rated by Standard & Poor's, Moody's, and Fitch between 1985 and 2012 (154'600 tranches), our results provide em-pirical evidence that rating agencies put more effort in rating and outlook revisions when tranches have assigned multiple ratings. Furthermore, we demonstrate that in the case of mul-tiple ratings, agencies do a better job in discriminating tranches with respect to default risk. On the downside, we observe a shift in collateral towards senior tranches and incentives for issuers to engage in rating shopping activities, but find no evidence that rating agencies exploit such behavior to attract more rating business. Our results contribute to the literature on information production of credit ratings and extend the perspective to the monitoring period after issuance.Type: journal articleJournal: Journal of Banking and FinanceVolume: 75
Scopus© Citations 16 -
PublicationSovereign Risk and the Pricing of Corporate Credit Default SwapsBased on an empirical analysis of European corporations, we investigate the impact of sover-eign risk on the pricing of corporate credit risk. In our paper, we show that sovereign credit default swaps (CDS) are positively correlated with corresponding corporate CDS spreads and are a significant factor for corporate CDS pricing models. We also find that this impact in-creases throughout the sovereign debt crisis in 2010-2011 and is more distinctive for Eurozone countries that were more exposed to the sovereign debt crisis than others. We further observe that this effect is particularly pronounced for corporations with a high dependency on their domestic market.Type: journal articleJournal: Journal of Credit RiskVolume: 11Issue: 1
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PublicationType: journal articleJournal: Credit and Capital MarketsVolume: 48Issue: 4DOI: 10.3790/ccm.48.4.693
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PublicationThe Liquidity Dynamics of Bank DefaultsWe compare liquidity patterns of 10,979 failed and non-failed US banks from 2001 to mid-2010 and detect diverging capital structures: failing banks distinctively change their liquidity position about three to five years prior to default by increasing liquid assets and decreasing liquid liabilities. The build-up of liquid assets is primarily driven by short term loans, whereas long term loan positions are significantly reduced. By abandoning (positive) term transformation throughout the intermediate period prior to a default, failing banks drift away from the traditional banking business model. We show that this liquidity shift is induced by window dressing activities towards bondholders and money market investors as well as a bad client base.Type: journal articleJournal: European Financial ManagementVolume: 20Issue: 2
Scopus© Citations 3 -
PublicationType: journal articleJournal: Credit and Capital MarketsVolume: 47Issue: 2DOI: 10.3790/ccm.47.2.367
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PublicationThe Impact of Counterparty Risk on Credit Default Swap Pricing DynamicsAs observed throughout the financial crisis in 2008 CDS contracts are not only exposed to the credit risk of the underlying reference entity but also to the counterparty risk of the protection seller. Conducting a panel regression analysis based on CDS contracts from 2004 to 2009 in Europe and North America for 198 reference entities we find that market-oriented counterparty risk measures are reflected in the pricing of CDS contracts. The impact of counterparty risk is decreasing with a higher creditworthiness of the underlying reference entity. We show that counterparty risk has been incorporated in the CDS spreads for North American reference entities already prior to the financial crisis, whereas for European reference entities the pricing impact only intensified with the outbreak of the financial crisis in September 2008. Market-based counterparty risk measures have a higher impact on the pricing of CDS contracts as compared to measures relying on the correlation structures of asset returns of reference entities and CDS counterparties.Type: journal articleJournal: Journal of Credit RiskVolume: 8Issue: 1
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PublicationSelecting credit portfolios for collateralized loan obligation transactions : A heuristic AlgorithmWe investigate the optimization of a securitized asset pool for collateralized loan obligation (CLO) transactions. Defining economic risk transfer as the objective function for optimization and the crucial underlying motivation for banks to engage in balance-sheet CLOs, we present the mathematical description of this optimization problem. The criteria applied by rating agencies to CLO transactions add both linear and non-linear constraints to this optimization task. As such problems may not be solved in closed form, we develop a heuristic algorithm and test it with realistic credit portfolio data. The application of this algorithm could support banks as originators when selecting an optimal securitized portfolio from an eligible asset pool. The algorithm becomes particularly relevant when considering the current credit crisis and the subsequent need for liquidity in banking: retained CLO tranches could be used as collateral in repo transactions with central banks and establish an alternative source of funding.Type: journal articleJournal: Journal of Credit RiskVolume: 5Issue: 4
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PublicationImpact of Multiple CDO Ratings on Credit SpreadsThe authors analyze whether multiple ratings for CDO tranches have an impact on credit spreads and examine the various effects with regard to the number of rating agencies involved. Based on a data set of more than 5,000 CDO tranches, the authors calculate index-adjusted credit spreads to isolate the specific credit risk per CDO tranche and find a negative correlation between number of ratings and credit spreads per CDO tranche-i.e., additional ratings are accompanied by lower credit spreads. On the basis of a valuation model, the authors show that multiple ratings are a significant pricing factor and conclude that investors demand an extra risk premium due to information asymmetries between CDO issuers and investors. Any additional rating reveals incremental information to the market and increases transparency with regard to the underlying portfolio's credit risk. However, the study does not find empirical support for the hypothesis that marginal tranche spread reduction decreases when additional rating agencies are added. Finally, the study finds evidence that second or third ratings by Fitch on average are higher when directly compared with Moody's and/or S&P ratings per CDO tranche. This finding is in line with existing literature on corporate bonds and indicates a bias also on CDO ratings due to their solicited character.Type: journal articleJournal: Journal of Fixed IncomeVolume: 19Issue: 1
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PublicationRating model arbitrage in CDO markets: An empirical analysisWe 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.Type: journal articleJournal: International Review of Financial AnalysisVolume: 18Issue: 1/2
Scopus© Citations 8 -
PublicationType: journal articleJournal: Zeitschrift für KMU und Entrepreneurship : ZfKEVolume: 57Issue: 1DOI: 10.3790/zfke.57.1.53
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