Publication Type
Journal Article
Version
publishedVersion
Publication Date
12-2022
Abstract
Agency mortgage-backed securities (MBSs) with diverse characteristics are traded in parallel through individualized specified pool (SP) contracts and standardized to-be-announced (TBA) contracts with delivery flexibility. This parallel trading environment generates distinctive effects on MBS pricing and trading: (i) Although cheapest-to-deliver (CTD) issues are present in TBA trading and absent from SP trading by design, MBS heterogeneity associated with CTD discounts affects SP yields positively, with the effect stronger for lower-value SPs; (ii) high selling pressure amplifies the effects of MBS heterogeneity on SP yields; and (iii) greater MBS heterogeneity dampens SP and TBA trading activities but increases their ratio.
Discipline
Finance
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
Journal of Finance
Volume
77
Issue
6
First Page
3249
Last Page
3287
ISSN
0022-1082
Identifier
10.1111/jofi.13180
Publisher
Wiley
Citation
FUSARI, Nicola; LI, Wei; LIU, Haoyang; and SONG, Zhaogang.
Asset pricing with cohort-based trading in MBS markets. (2022). Journal of Finance. 77, (6), 3249-3287.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7918
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/85139446862
Additional URL
https://doi.org/10.1111/jofi.13180