问题：1.Did Subjectivity Play a Role in CDO Credit Ratings?

2. Why Do Individual Investors Buy Retail Structured Financial Products?

报告人：Dragon Yongjun Tang (The University of Hong Kong )

时间：11月10日（周二）10:00-11:30am

所在：伟易博新楼217课堂

问题1摘要：Analyzing 916 CDOs issued from January 1997 to December 2007, we find that direct outputs from a rating agency model are more straightforward and accurate than actual ratings assigned to CDOs. Actual sizes of AAA rated tranches are on average 12.1% larger than implied by the rating agency model. These adjustments to the rating agency model are difficult to explain by possible determinants but exhibit a clear pattern of low model-implied AAA CDOs receiving larger adjustments. CDOs with larger adjustments experience worse subsequent performance. Moreover, prior to April 1, 2007, 91.2% of AAA rated notes only comply with the credit rating agency’s own AA default rate standard. Had the credit rating agency followed its model and default standards AAA rated tranches would on average have been rated BBB, resulting in a 20.1% lower valuation.

问题2摘要：Structured financial products characterized with customized payoffs are latest innovations in investment world. Theory of decision making under ambiguity predicts that individual investors would shun away from structured products due to lack of prior knowledge. However, a substantial number of retail investors in Hong Kong, Taiwan, and Singapore have bought structured products as revealed by the Lehman Brothers bankruptcy. These products offer remarkably low risk-adjusted returns. We collect investor demographic information and transaction details in Hong Kong to understand this puzzling investment experience. Theoretically important variables such as product risk, risk premium, and investor risk aversion have no explanatory power to structured products allocation. More financially literate investors who can form reasonable expectations about stocks bought less. Education, IQ, and relationship with the distributing banks are statistically significant explanatory variables. However, we can only explain one-fifth of the cross-sectional variations of investment in structured products. The rest could be due to bounded rational investor behaviors and misselling by distributors.

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