Publication Type
Journal Article
Version
submittedVersion
Publication Date
8-2019
Abstract
Mortgage dollar roll, the most common financing strategy for agency MBS, differs from repo in that the returned collateral can differ from those received. Also, MBS ownership changes hands in the funding period. We show that dollar roll “specialness,” how much implied financing rates fall below MBS repo rates, (1) increases in the value of the cheapest-to-deliver option, (2) decreases in the leverage of primary dealers, (3) decreases in prepayment risk exposure during the financing period, and (4) decreases in MBS returns. The Federal Reserve’s dollar roll sales in quantitative easing operations are associated with lower specialness.
Keywords
MBS, Dollar Roll, TBA, Specialness
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Areas of Excellence
Growth in Asia
Publication
Review of Financial Studies
Volume
32
Issue
8
First Page
2955
Last Page
2996
ISSN
0893-9454
Identifier
10.1093/rfs/hhy117
Publisher
Oxford University Press
Citation
SONG, Zhaogang and ZHU, Haoxiang.
Mortgage dollar roll. (2019). Review of Financial Studies. 32, (8), 2955-2996.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7924
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/85082880558
Additional URL
https://doi.org/10.1093/rfs/hhy117