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Mortgage risk and the yield curve
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Malkhozov, Aytek, Mueller, Philippe, Vedolin, Andrea and Venter, Gyuri (2016) Mortgage risk and the yield curve. Review of Financial Studies, 29 (5). pp. 1220-1253. doi:10.1093/rfs/hhw003 ISSN 0893-9454.
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Official URL: http://dx.doi.org/10.1093/rfs/hhw003
Abstract
We study feedback from the risk of outstanding mortgage-backed securities (MBS) on the level and volatility of interest rates. We incorporate supply shocks resulting from changes in MBS duration into a parsimonious equilibrium dynamic term structure model and derive three predictions that are strongly supported in the data: (1) MBS duration positively predicts nominal and real excess bond returns, especially for longer maturities; (2) the predictive power of MBS duration is transitory in nature; and (3) MBS convexity increases interest rate volatility, and this effect has a hump-shaped term structure.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HG Finance | ||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Mortgage-backed securities -- Mathematical models, Interest rates | ||||||||
| Journal or Publication Title: | Review of Financial Studies | ||||||||
| Publisher: | Oxford University Press | ||||||||
| ISSN: | 0893-9454 | ||||||||
| Official Date: | 1 May 2016 | ||||||||
| Dates: |
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| Volume: | 29 | ||||||||
| Number: | 5 | ||||||||
| Page Range: | pp. 1220-1253 | ||||||||
| DOI: | 10.1093/rfs/hhw003 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 1 November 2017 | ||||||||
| Date of first compliant Open Access: | 21 January 2018 | ||||||||
| Funder: | Institut de finance mathématique de Montréal, London School of Economics and Political Science (LSE), Handelshøjskolen i København | ||||||||
| Grant number: | Grant no. DNRF102 (Handelshøjskolen i København) |
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