Temporal Relationships among Adjustable-Rate Mortgage Indexes.

This article investigates the linkage among six ARM indexes during the 1978-89 period. Granger's direct causality test is used to examine their relationship within a rolling regression framework. The nonstationary properties of each index and selected pairs of indexes are investigated by using the unit root and cointegration tests. The empirical results confirmed their relationship has changed over this period and short-term rates lead the eleventh district cost-of-funds index. The implications of the empirical results from the perspectives of borrowers (ARM choice), lenders (pricing), and investors (security valuation) are also discussed. Copyright 1991 by Kluwer Academic Publishers