Intermarket Efficiency: An Application of Interbattery APT to Mortgage-Backed Securities
AbstractIncreasing popularity of investments in mortgage-backed securities has led to closer integration of the mortgage market into traditional capital markets. Using monthly returns during 1982-1988 for common stocks, Treasury bonds and GNMA and FHLMC mortgage-backed securities, the interbattery factor analytic Arbitrage Pricing Theory of (Cho., 1984) is used to test five hypotheses for intramarket and intermarket integration. Results indicate that three to five common factors are found within the same security market, while only one to three factors are found common between different markets. The APT could not be rejected within the same security market, but as rejected in most intermarket comparisons. While risk-free rates are found to differ between markets, the risk premium tests are conclusive indicators of integration. Our results support claims that the stock, bond, and the mortgage-backed securities markets are integrated. Copyright 1993 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Journal of Real Estate Finance & Economics.
Volume (Year): 7 (1993)
Issue (Month): 2 (September)
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- Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2006.
"Do households benefit from financial deregulation and innovation?: the case of the mortgage market,"
Public Policy Discussion Paper
06-6, Federal Reserve Bank of Boston.
- Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2007. "Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market," NBER Working Papers 12967, National Bureau of Economic Research, Inc.
- Séverine CAUCHIE & Martin HOESLI, 2004. "The Integration of Securitized Real Estate and Financial Assets," FAME Research Paper Series rp111, International Center for Financial Asset Management and Engineering.
- Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2007. "Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market," Working Papers 61, Princeton University, Department of Economics, Center for Economic Policy Studies..
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