Complex Securities and Underwriter Reputation: Do Reputable Underwriters Produce Better Securities?

Deskripsi

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 the conventional view, securities issued by more reputable banks did not outperform but, rather, had higher proportions of capital in default.