Mortgage Dollar Roll
Name
SSRN-id2401319.pdf
Description
Submitted version
Size
739.93 KB
Format
Adobe PDF
Checksum (MD5)
ccca406a9f492cf2735304f9a3c1971b
Author(s)
Zhu, Haoxiang
Date Issued
August 2019
Journal
Review of Financial Studies
Publisher
Oxford University Press (OUP)
Citation
Song, Zhaogang and Haoxiang Zhu. “Mortgage Dollar Roll.” Review of Financial Studies, 32, 8 (August 2019): 2955–2996 © 2019 The Author(s)
Version
Original manuscript
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.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1093/RFS/HHY117
