A credit rating system in which the number of observed defaults aligns well with the number of defaults expected by the system demonstrates good calibration. I derive new goodness-of-fit statistics to test the calibration hypothesis over several observation periods and I therefore solve the...

Corporate ratings remove the information asymmetry between lenders and borrowers to find an equilibrium price. Structured credit ratings, however, are informationally insufficient because the systematic risk of equally rated assets can vary substantially. As I demonstrate, highly-rated...