On the Seasonalities of Mortgage-Backed Security Prices

Abstract

In this paper, we investigate several well-documented seasonalities in the pricing of mortgage-backed securities. Parallel evidence to the equity markets is found in the GNMA pass-through markets for the existence of the day-of-the-week effect, the turn-of-the-month effect, the holiday effect, and the turn-of-year effect. While the striking similarity of such seasonalities exists in both the financial asset prices of mortgage-backed securities and of the equity markets, it does not suggest that the underlying real assets also follow the same pattern. Since both the GNMA pass-throughs and common stocks are backed by vastly different real assets, the common evidence of seasonalities would only imply that the seasonalities may have been a result of capital market trading phenomena.