TY - JOUR T1 - Modeling the Dynamics of MBS Spreads JF - The Journal of Fixed Income SP - 43 LP - 49 DO - 10.3905/jfi.2002.319323 VL - 12 IS - 2 AU - Gregory Koutmos Y1 - 2002/09/30 UR - https://pm-research.com/content/12/2/43.abstract N2 - This article investigates the dynamics of mean reversion and volatility in mortgage-backed security spreads, the yield spreads between conventional 30-year mortgages and Treasury securities. The findings indicate that changes in MBS spreads follow in all instances asymmetric mean-reverting processes. They exhibit non-stationary behavior following spread increases, but they are strongly mean-reverting following spread decreases. The mean-reverting component is statistically and economically stronger, thus offsetting non-stationarity. Volatility is time-varying, depending on past innovations, past volatility estimates, and the level of past spreads. Its behavior is asymmetric, rising more in response to positive innovations. ER -