111 3.6 Investor Reliance on Credit Ratings of Moody’s and S&P As mentioned in the introduction, policy-makers have been focusing on the importance to investors of having more than one credit rating on structured finance securities due to the perception that they are all complex by nature. Wo r htiwl s ot wc er esdhi ot wr atthi nagt sc oomn ptlheexiirt yCmL Oa tst, etrhs ei nqtuhees tdi oe cni sri eomn aoifniss swu ehrest ht oe rr ei pn vo er ts toonr es are aware of the credit rating risk that rating catering behavior causes, and the extent to which they vary their yield requirements to reflect such credit rating re ii st hk .e rT hMi so opdoyi ’ns t, Si s& Pi l, l uo sr t br aottehd. Ians t fhoel l oa bwsse. nEcvee or yf rCa Lt iOn gi nc aot ue rr i ns ga ,mt hp el er ei ss hr ao tuel dd bb ye idnuf ao lr-mr aat teido nsaelc vuar li ut iee sc ownitlal i tneendd i nt omcuolnt itpa lien rna ot i nagdsd. iItfi or antai ln gi ncf oa tremr iant gi oins apl rceovna tl ee nn tt ,, at hned ytiheel dr ecfoo mr epwa roeudl dt oh aa vsei nngol ea rdadtietdi osneacluerxi pt yl a(nHa4t o) .r y p o w e r i n t h e a s s e s s m e n t o f Tr eog rteessst i ot hni sa nhaylpy os itsh ei ns i sE, qwu ea t imo no v(e3 . t3o) , atnh eOyLiSe l dr e ga rt eissssiuoann cf rea mi s etwh oe r dk .e pFeonr doeunrt variable and the credit rating is the key independent variable, sorted by year and issasmu eprl ef;i xtehde es fi fnegcltes . rCa ot el ud mt rnasn (c1h)e sa nr da t (e2d) eoxfc Pl uasni ve el lAy ibny TMa boloed3y.’5s caor en tiani nc ot hl uemf unlsl (( 36 )) , aanndd( 4t h) ,et hdeu as il nrgaltee rda tt er adnCcLhOe ss raartee di ne xc oc lluusmi vnesl y( 7b y) Sa n&dP (a8r e) . i Wn ceoal ur em innst e( 5r e) satne dd itnw tohcer ei md ipt arcatt ionfgtshaencdr et hdei t erxapt il anng aot no rtyh ve ayl ui eel da sf omr esaescuurrei tdi ebsyt h a t r e c e i v e d o n e o r R2. Column (1) does not include any control variables. The R2 of 0.52 reveals a significant explanatory power of the credit rating. Columns (3) and (5) show that the credit rating cwoiet hf f iac i ceonet f ifsi cdi erna tmoaft i1c8a .l1l y9 ,l ocwo me rpfaorre da Ct oL O3 2t.h5a7t, ii sn rcaot leudmenx c(l5u)s, i vf oerl ya bCyLMO ot ohda yt ’ iss, rated solely by S&P. Also, in columns (3) and (5), we see for CLOs exclusively Chapter 3 - Security Design and Credit Rating Risk
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