The Ranking Model In The CDO Market

The 2007-08 financial crisis still has a huge impact on our financial world. Subprime crisis initially appeared as a direct breach of mortgage losses, but it was CDOs (Collat-eralized Debt Obligations, CDO) that amplified the influence, and many potential prob-lems have not yet erupted.CDO is structured financial product, and is more dependent on independent third party rating agencies to its rating, compared with other types of bonds. Due to the asym-metric information between the issuer and the investor, rating model arbitrage (or called ratings shopping) appeares.The paper’s initial idea comes from Fender and Kiff (2005), based on empirical data and statistical methods, we tested if rating model arbitrage based on asymmetric infor-mation exists. In univariate tests phase, we used ANOVA and K-S test, based on the re-sults of whom, we performed discriminant analysis and obtained multivariate test results. Therefore we concluded that rating model arbitrage based on information asymmetry does exist, and variables Currency and Maturity have significant impact of the issuance of CDO.