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- Title
Mortgage Dollar Roll.
- Authors
Song, Zhaogang; Zhu, Haoxiang
- 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. Received February 3, 2016; editorial decision July 30, 2018 by Editor Itay Goldstein. Authors have furnished an Internet Appendix , which is available on the Oxford University Press Web site next to the link to the final published paper online.
- Subjects
UNITED States; MORTGAGE loans; MORTGAGE-backed securities; PREPAYMENT of debts; RISK exposure; BOARD of Governors of the Federal Reserve System (U.S.); FIXED-income securities; QUANTITATIVE easing (Monetary policy)
- Publication
Review of Financial Studies, 2019, Vol 32, Issue 8, p2955
- ISSN
0893-9454
- Publication type
Article
- DOI
10.1093/rfs/hhy117