December 12, 2012
Retail Trading Comes to Mortgage-Backed Securities
In a recent paper, Bessembinder et al. look at the implications of FINRA’s proposal to disseminate trade prices for structured products like mortgage-backed securities to the public. They evaluate how price transparency has impacted the corporate bond market and find that it “increased bonds’ propensity to trade and increased overall volume.” (24) They note that trading costs shrank. They argue that the same impact may be felt in structured product markets.
It is unclear what this change will mean for the homeowner, but it would seem to mean that there will be a reduction in interest expense and an increase in liquidity in the market for credit but perhaps also an increase in the role that “animal spirits” will play as the business cycle inexorably turns from bust to plateau to boom to bust . . ..| Permalink