CFA Institute Weighs in Credit Ratings Industry

In Credit Ratings on March 19, 2012 by Global Index Group Tagged: , , , ,

The issuer-pay credit ratings industry has taken quite a few hits from Congress, the regulators and the media in the aftermath of the subprime mortgage crisis. Now the independent industry group, the CFA Institute, has written about where the issuer-pay credit ratings industry is today and where investors should go for their credit analysis.

The article discusses various alternatives to using S&P, Moody’s and Fitch as the basis of an investor’s credit analysis. One alternative omitted from the discussion is an investor-pay credit rating agency such as Egan-Jones. In various academic papers, the investor-pay ratings have been shown to have better predictive power than the issuer-pay ratings. Some of the papers speculate that this difference is due to the difference in the business models of the firms generating the ratings.

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