Publication Type
Journal Article
Version
publishedVersion
Publication Date
5-2025
Abstract
In addition to the standard individual-security-based specified pool (SP) contract, agency mortgage-backed securities (MBS) are actively traded via the to-be-announced (TBA) contract that sets a uniform price for a cohort of heterogeneous securities. We provide empirical support for the economic impact of TBA trading on MBS issuers' security design: issuers pick low-quality loans and pool them together into few TBA MBS. We then conduct a quantitative analysis and show that TBA-trading-induced strategic MBS design increases issuers' selling revenue by about 55% of the SP transaction costs. Finally, we show that smaller issuers are less able to package low-quality loans separately from high-quality ones and hence benefit less from TBA trading.
Keywords
cohort, MBS, security design, specified pool, TBA
Discipline
Finance
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
Real Estate Economics
Volume
53
Issue
3
First Page
607
Last Page
642
ISSN
1080-8620
Identifier
10.1111/1540-6229.12528
Publisher
Wiley
Citation
AN, Yu; LI, Wei; and SONG, Zhaogang.
TBA trading and security issuance in the agency MBS market. (2025). Real Estate Economics. 53, (3), 607-642.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7927
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://api.elsevier.com/content/abstract/scopus_id/105003923124
Additional URL
https://doi.org/10.1111/1540-6229.12528