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on Financial Markets |
| By: | Andreas Fuster; David O. Lucca; James Vickery |
| Abstract: | This paper reviews the mortgage-backed securities (MBS) market, with a particular emphasis on agency residential MBS in the United States. We discuss the institutional environment, security design, MBS risks and asset pricing, and the economic effects of mortgage securitization. We also assemble descriptive statistics about market size, growth, security characteristics, prepayment, and trading activity. Throughout, we highlight insights from the expanding body of academic research on the MBS market and mortgage securitization. |
| Keywords: | mortgage finance; securitization; agency mortgage-backed securities; TBA; option-adjusted spreads; covered bonds |
| JEL: | G10 G12 G21 |
| Date: | 2025–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:99708 |
| By: | Daniel Pastorek (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic); Peter Albrecht (Department of Department of Finance and Accounting, Faculty of Business and Economics, Mendel University in Brno, Czech Republic) |
| Abstract: | Our study examines to what extent the introduction of Bitcoin spot exchange-traded funds (ETFs) affected Bitcoin’s properties, including market dynamics, volatility, returns, return distribution, and tracking errors. Using block bootstrap simulations, OLS regression, EGARCH modeling, and non-parametric tests, we find that Bitcoin ETFs increase volatility and downside risk while leaving average returns unchanged. Return distribution shifts, including reduced skewness and kurtosis, suggest partial normalization, typically linked to greater liquidity and market participation. However, unlike traditional ETFs, Bitcoin ETFs introduce fail-to-deliver (FTD) occurrences—previously absent in Bitcoin markets—which mitigate extreme price movements through delayed settlement. Tracking error analysis confirms that spot ETFs more accurately track Bitcoin’s price than futures-based ETFs. These findings offer critical insights into Bitcoin ETFs’ market effects, particularly regarding stability and investor behavior. |
| Keywords: | Bitcoin, ETFs, volatility, market dynamics, FTDs |
| JEL: | G11 G12 G14 G23 C58 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:men:wpaper:99_2025 |
| By: | Vassilios Babalos (Department of Accounting and Finance, University of Peloponnese, Kalamata, Greece); Xolani Sibande (Department of Economics, University of Pretoria, Pretoria, South Africa); Elie Bouri (Adnan Kassar School of Business, Lebanese American University, Lebanon); Rangan Gupta (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa) |
| Abstract: | This study offers new insights into the herding behaviour in US clean energy Exchange-traded funds (ETFs) over the period from May 1, 2016 to June 19, 2024. The baseline model shows significant herding. An extended mode indicates that herding is present in both down and up markets, with a stronger effect in the down market, suggesting an asymmetry. Herding is also found to be time-varying. Further analysis shows that the transition climate risk, particularly its high level, reduces the probability of herding in clean energy ETFs, whereas physical climate risk does not exert any significant impact on the probability of herding. Thus, large levels of transition climate risk seem to encourage market efficiency in clean energy ETFs and climate-hedging behavior by investors. |
| Keywords: | Herding Behaviour, Climate Change, Clean Energy |
| JEL: | G14 Q54 P18 |
| Date: | 2025–04 |
| URL: | https://d.repec.org/n?u=RePEc:pre:wpaper:202512 |
| By: | Itamar Drechsler; Hyeyoon Jung; Weiyu Peng; Dominik Supera; Guanyu Zhou |
| Abstract: | Credit card interest rates, the marginal cost of consumption for nearly half of households, currently average 23 percent, far exceeding the rates on any other major type of loan or bond. Why are these rates so high? To understand this, and the economics of credit card banking more generally, we analyze regulatory account-level data on 330 million monthly accounts, representing 90 percent of the US credit card market. Default rates are relatively high at around 5 percent, but explain only a fraction of cards’ rates. Non-interest expenses and rewards payments are more than offset by interchange and non-interest income. Operating expenses, such as marketing, are very large, and are used to generate pricing power. Deducting them, we find that credit card lending still earns a 6.8 percent return on assets (ROA), more than four times the banking sector’s ROA. Using the cross section of accounts by FICO score, we estimate that credit card rates price in a 5.3 percent default risk premium, which we show is comparable to the one in high-yield bonds. Adjusting for this, we estimate that card lending still earns a 1.17 percent to 1.44 percent “alpha” relative to the overall banking sector. |
| Keywords: | credit cards; banking; asset pricing; household finance |
| JEL: | G12 G21 G51 |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99669 |
| By: | Nicola Cetorelli; Gonzalo Cisternas; Asani Sarkar |
| Abstract: | What is the essence of non-bank financial intermediation? How does it emerge and interact with intermediation performed by banks? To investigate these questions, we develop a model-based survey: we classify existing models into different intermediation functions á la Merton (1995) to show that variations of them admit a common modeling structure; then, we extend or reinterpret the resulting models to connect equilibrium strategies to non-bank activities in practice. Particular emphasis is placed on the coexistence of banks and non-banks: how their competition, or the extent of cooperation through contractual arrangements, varies across intermediation functions. Through this approach we speak to a variety of entities such as traditional banks, open-end funds, special purpose vehicles, private credit entities, and fintech lenders. We also discuss innovation, regulation, and market liquidity as drivers of non-bank activities. |
| Keywords: | Non-banks; banks; financial intermediation |
| JEL: | G21 G23 G18 |
| Date: | 2025–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:99720 |
| By: | Matteo Iacoviello (Federal Reserve Board of Governors and CEPR); Ricardo Nunes (University of Surrey); Andrea Prestipino (Federal Reserve Board of Governors) |
| Abstract: | We study optimal credit market policy in a stochastic, quantitative, general equilibrium, infinite-horizon economy with collateral constraints tied to housing prices. Collateral constraints yield a competitive equilibrium that is Pareto inefficient. Taxing housing in good states and subsidizing it in recessions leads to a Pareto-improving allocation for borrowers and savers. Quantitatively, the welfare gains afforded by the optimal tax are significant. The optimal tax reduces the covariance of collateral prices with consumption, and, by doing so, it increases asset prices on average, thus providing welfare gains both in steady state and around it. We also show that the welfare gains stem from mopping up after the crash rather than a pure ex-ante macroprudential aspect, aligning with prior research that emphasizes the importance of ex-post measures compared to preventative policies alone. |
| JEL: | E32 E44 G18 H23 R21 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:sur:surrec:0225 |