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An empirical examination of the return distribution characteristics of agency mortgage pass-through securities

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  • Frank Fabozzi
  • Borjana Racheva-Iotova
  • Stoyan Stoyanov

Abstract

The study investigates whether the stable Paretian hypothesis is more adequate to explain the returns of US agency mortgage pass-through securities than the traditional normal distribution assumption. The daily returns of six representative index generics of Lehman Brothers are investigated in the framework of three different probabilistic models: independent, identically distributed model, the EWMA model, and the ARMA-GARCH model. It is found that the stable Paretian hypothesis better explains not only the tails but the central part of the distribution as well.

Suggested Citation

  • Frank Fabozzi & Borjana Racheva-Iotova & Stoyan Stoyanov, 2006. "An empirical examination of the return distribution characteristics of agency mortgage pass-through securities," Applied Financial Economics, Taylor & Francis Journals, vol. 16(15), pages 1085-1094.
    • Handle: RePEc:taf:apfiec:v:16:y:2006:i:15:p:1085-1094
    DOI: 10.1080/09603100500438775
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    References listed on IDEAS

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    1. Mittnik, Stefan & Paolella, Marc S. & Rachev, Svetlozar T., 2002. "Stationarity of stable power-GARCH processes," Journal of Econometrics, Elsevier, vol. 106(1), pages 97-107, January.
    2. Benoit Mandelbrot, 2015. "The Variation of Certain Speculative Prices," World Scientific Book Chapters, in: Anastasios G Malliaris & William T Ziemba (ed.), THE WORLD SCIENTIFIC HANDBOOK OF FUTURES MARKETS, chapter 3, pages 39-78, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Alex YiHou Huang, 2012. "Volatility forecasting by quantile regression," Applied Economics, Taylor & Francis Journals, vol. 44(4), pages 423-433, February.

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