Publication Type
Journal Article
Version
publishedVersion
Publication Date
6-2017
Abstract
Agency mortgage-backed securities (MBS) trade simultaneously in a market for specified pools (SPs) and in the to-be-announced (TBA) forward market. TBA trading creates liquidity by allowing thousands of different MBS to be traded in a handful of TBA contracts. SPs that are eligible to be traded as TBAs have significantly lower trading costs than other SPs. We present evidence that TBA eligibility, in addition to characteristics of TBA-eligible SPs, lowers trading costs. We show that dealers hedge SP inventory with TBA trades, and they are more likely to prearrange trades in SPs that are difficult to hedge.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Areas of Excellence
Digital transformation
Publication
Journal of Finance
Volume
72
Issue
3
First Page
1119
Last Page
1170
ISSN
0022-1082
Identifier
10.1111/jofi.12496
Publisher
Wiley
Citation
GAO, Pengjie; SCHULTZ, Paul; and SONG, Zhaogang.
Liquidity in a market for unique assets: Specified pool and to-be-announced trading in the mortgage-backed securities market. (2017). Journal of Finance. 72, (3), 1119-1170.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7946
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/85017520969
Additional URL
https://doi.org/10.1111/jofi.12496