Can Information Imprecision Be Valuable? The Case of Credit Ratings

Seminar abstract

We develop a model that explains two stylized facts - the coarseness of credit ratings relative to the underlying default probabilities, and the countercyclical nature of ratings imprecision. The imprecise nature of coarse ratings arises from the revenue-maximizing behaviour of rating agencies, but it may maximize net social surplus. When there is competition among rating agencies, for some parameter values welfare is increased by restricting competition, and for others it is increased by encouraging competition. In addition to the novel result that coarseness improves welfare relative to greater precision, our model also generates new testable predictions.

How to attend this seminar

This seminar is free to attend.

We welcome you to join us online on Wednesday 22 June 2022.

Please contact Dr Anna Sarkisyan for information on how to attend this seminar

Speaker bio

Kostas Koufopoulos is a Professor of Economics and Finance at the University of York. He holds a PhD in Economics from London School of Economics. His research interests include banking, contract theory, corporate finance, and market microstructure. Kostas has published his work in top academic journals including the Journal of Financial Economics, Journal of Corporate Finance, and Journal of Money, Credit and Banking.