Date of Award


Degree Name

Doctor of Philosophy



First Advisor

Gilbert, Scott


The first essay explores the dynamic behaviors of mortgage-backed stock returns and their volatility spillovers within the framework of time-varying symmetric, asymmetric and multivariate GARCH-family models. The focus of the chapter is on the dynamics of volatility of the U.S. real estate investment trusts (REITs) and volatility spillovers within the REITs subdivisions as well as between the REITs and the Fannie Mae (FNM) and theFreddie Mac (FRE) mortgage-backed stocks. We analyze risk-return linkages using the GARCH-in-mean (GARCH-M) model. The presence of asymmetric effects of "bad" news and "good" news on conditional financial volatilities is evaluated using the Threshold ARCH (TARCH) model and the exponential GARCH (EGARCH) model. Volatility spillovers and comovements within REITs subdivisions; REITs with FNM and FRE and other selected financial assets are examined using the multivariate GARCH (MGARCH) model. The second essay investigates factors behind the existence of time-varying conditional volatilities of mortgage-backed securities (MBS). This is done by analyzing the impacts of economic volatilities on mortgage-backed financial markets' performance. The relationship between conditional volatilities of the MBS and conditional volatilities of the key economic fundamentals in the housing sector and the macroeconomy are explored. The sensitivity of mortgage-backed stocks to the underlying time-series changes in economic fundamentals, and the extent to which economic volatilities explain the variation in mortgage-backed stocks' volatilities are investigated. Particularly, we examined whether changes in the REITs, FNM and FRE volatilities are linked to and driven by time-varying volatilities of the housing sector economic activity and set of key macroeconomic variables. Thus, the chapter analyzes the impacts of conditional economic volatilities on the conditional volatilities of the REITs, FRE and FNM stocks. The GARCH (p, q) process is used to find conditional volatility dynamics for the economic variables in the study. Then we employ multivariate GARCH (p, q) model to investigate the spillovers and comovements among the conditional economic fundamentals' volatilities and the conditional volatilities of the MBS. The third essay explores the impacts of foreign sector of the economy on the mortgage-backed financial markets and the housing sector. There is large surge of foreign capital flows to the U.S, particularly since late 1990s. The net foreign holdings of U.S. financial assets have become very significant in the U.S. Treasury notes and bonds. Foreign investors also hold a growing share of securities of the U.S. agencies and government sponsored enterprises (GSEs). Similarly, foreign direct investment in the U.S. real estate as well as real estate equities in the form of REITs has grown sharply. To this end, a multivariate vector autoregression (VAR) model is the main tool of analysis. Based on the VAR model, generalized impulse response functions and generalized variance decompositions are employed to evaluate the responses of mortgage interest rates and Treasury yields to the changes in net foreign ownership of U.S. Treasuries and agency bonds.




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