Complex Securities and Underwriter Reputation: Do Reputable Underwriters Prod…

Conventional wisdom suggests that high-reputation banks will generally produce good securities to maintain their long-run reputation. We show with a simple model that when securities are complex a high-reputation bank may produce assets that underperform during market downturns. We examine this possibility using a unique sample of 10.1 trillion dollars of CLO, MBS, ABS, and CDOs. Contrary to th…