An empirical examination of the return distribution characteristics of agency mortgage pass-through securities

Frank Fabozzi (), Borjana Racheva-Iotova and Stoyan Stoyanov

Applied Financial Economics, 2006, vol. 16, issue 15, 1085-1094

Abstract: The study investigates whether the stable Paretian hypothesis is more adequate to explain the returns of US agency mortgage pass-through securities than the traditional normal distribution assumption. The daily returns of six representative index generics of Lehman Brothers are investigated in the framework of three different probabilistic models: independent, identically distributed model, the EWMA model, and the ARMA-GARCH model. It is found that the stable Paretian hypothesis better explains not only the tails but the central part of the distribution as well.

Date: 2006
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DOI: 10.1080/09603100500438775

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