Asset Pricing and Investment Management in Securitized Real Estate Markets

Dear Colleagues,

Securitization has become the dominant source of funding in real estate mortgages in the United States. In the securitization process, mortgages are pooled, and then the securities that are collateralized by those pools are issued to investors. The securities typically have cash flows tied to the principal and interest payments on a pool of underlying mortgages, including mortgage-backed securities (MBS). The MBS market has become one of the largest and most liquid global fixed-income markets since its birth in the 1970s. As of 2022, the US MBS market had more than USD 11 trillion of securities outstanding and nearly USD 300 billion in average daily trading volume. The collateral in securitization consists of mortgages on individual residential properties for residential MBS (RMBS) or a diverse range of commercial real estate for commercial MBS (CMBS). The MBS market includes both agency MBS, which carry a government-backed credit guarantee from one of three housing agencies—Fannie Mae, Freddie Mac, or Ginnie Mae—and nonagency MBS, which are not guaranteed and are issued by private financial institutions.

The US housing market crash and mortgage defaults during the Great Recession put MBS, especially nonagency MBS, under intense scrutiny. The MBS market has recovered since the Great Recession, with a fraction of the total home mortgage debt securitized into MBS exceeding the pre-crisis level. But nonagency MBS issuance remains far below its former levels. On the other hand, both agency and nonagency CMBS markets have experienced an extraordinary boom since the Great Recession.

Investment in the MBS market involves a distinct institutional background, security and market design, and a more regulatory environment from other asset classes. Mortgage securitization also has immense macroeconomic effects. This Special Issue aims to promote financial studies focusing on investment and trading in the MBS market. Insights derived from these studies can contribute significantly to the understanding of this huge yet less studied market, the impact of the MBS market on the macroeconomy, and the debate on financial innovation and the appropriate regulatory responses.

In this Special Issue, original research articles and reviews are welcome. Research areas may include (but not limited to) the following:

Asset pricing and investment in Securitized Real Estate Markets;

Securitization and risk management;

Risks to MBS investing, such as interest rate risk, prepayment risk, credit risk, and liquidity risk;

The effect of monetary policy on MBS investing, such as the Federal Reserve’s MBS purchase programs;

Trading, such as the to-be-announced (TBA) market;

International MBS markets;

MBS investor behavior;

Socially responsible investing in the MBS market;

Generative AI and MBS.

We look forward to receiving your contributions.

Dr. Feng Zhao
Guest Editor

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