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- Title
Asset pricing, asymmetric information and rating announcements: does benchmarking on ratings matter?
- Authors
Pagratis, Spyros
- Abstract
This article discusses an intertemporal model of asset pricing under asymmetric information, demonstrating how noisy public ratings about the quality of a risky asset could enhance information efficiency, albeit at a cost of higher asset price volatility. The analysis also draws implications for the use of ratings for benchmarking purposes, with most notable example the dichotomy between investment and sub-investment grade credits. In particular, the author considers a stylized version of benchmarking investment decisions to ratings, whereby a residual class of traders link their net supply of a rated asset to some measure of the probability that the rating next period will fall below a given threshold.
- Subjects
UNITED Kingdom; PRICING; ASSETS (Accounting); INVESTMENTS; COST effectiveness; MARKET volatility; FINANCIAL markets; INVESTMENT analysis
- Publication
Bank of England Quarterly Bulletin, 2005, Vol 45, Issue 2, p189
- ISSN
0005-5166
- Publication type
Article