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The Real Effects of Secondary Market Trading Structure: Evidence from the Mortgage Market

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Listed:
  • Yesol Huh
  • You Suk Kim

Abstract

By allowing different agency mortgage-backed securities (MBS) to be traded based on limited characteristics, the to-be-announced (TBA) market generates liquidity and benefits the MBS market broadly. We quantify effects of the TBA structure on mortgage borrowers. Exploiting discontinuities in TBA eligibility, we estimate that TBA eligibility reduces mortgage rates by 7 to 28 basis points. The TBA eligibility benefit is larger for mortgages with higher expected prepayments. We also find that TBA eligibility affects refinancing, which has implications for monetary policy transmission. Our finding is relevant for housing policies, such as housing finance reforms and uniform MBS.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.

Suggested Citation

  • Yesol Huh & You Suk Kim, 2022. "The Real Effects of Secondary Market Trading Structure: Evidence from the Mortgage Market," The Review of Financial Studies, Society for Financial Studies, vol. 35(8), pages 3574-3616.
    • Handle: RePEc:oup:rfinst:v:35:y:2022:i:8:p:3574-3616.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhab116
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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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