Prepayment Risk and Expected MBS Returns ∗

  • Peter Diep, †Andrea, Eisfeldt, ‡Scott Richardson
  • Published 2017


We present a simple, linear asset pricing model of the cross section of Mortgage-Backed Security (MBS) returns in which MBS earn risk premia as compensation for their exposure to prepayment risk. We measure prepayment risk and estimate security risk loadings using real data on prepayment forecasts vs. realizations. Estimated loadings are monotonic in… (More)


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